Bank of America adds a profit miss to the misery of a $1.2 billion government fine

By Tomi Kilgore

BofA hasn't been seeing signs that higher interest rates has curtailed demand for borrowing, or spending on AI infrastructure

Bank of America's stock falls as investor disappointment over the $1.2 billion government fine added to the bank's downbeat earnings report.

Shares of Bank of America sank in early Wednesday trading as the banking giant followed news of a massive government fine with earnings that missed expectations, citing weakness in its investment banking and trading businesses.

But the bank reported growth in commercial-lending and consumer-loan activity, a sign that the recent surge in bond yields and the Federal Reserve's interest-rate hike curtailed demand for borrowing. And the credit quality of those borrowers remained stable, as money put aside for losses on loans was about the same as last year.

Chief Financial Officer Alastair Borthwick addressed concerns that higher rates may reduce the willingness to spend on the build-out of artificial-intelligence infrastructure, such as data centers, saying on the postearnings call with reporters, "I don't think rates have affected the discussion much."

He said the bank continues to see growth in all business-loan categories, even with the higher rates, including small businesses. "That leads us to believe everybody is participating, to some degree, in the 'hyperscaler' trend," he said.

The stock (BAC) dropped 5.4% in premarket trading and was on track to open near the lowest closing price since May 28. The stock was also headed for the biggest one-day postearnings loss in more than five years, based on available FactSet data back to July 2021.

Investors had already braced for the worst, as the U.S. Treasury Department said late Tuesday it was imposing penalties of more than $1.21 billion against Bank of America for violations of anti-money-laundering laws.

"Financial institutions are on the front lines of protecting our economic and national security," Secretary Scott Bessent said in a statement. "When a bank of this size fails to meet its anti-money laundering and sanctions obligations, the consequences extend far beyond its own walls, exposing the entire U.S. financial system to significant illicit finance risks."

CFO Alastair Borthwick assured investors that the bank had already completed a lot of work that was required by regulators.

"We've staffed up over time, so we feel we are meeting all the obligations under the consent order at this point," Borthwick said.

Still, the fine took a 17-cent bite out of the bank's third-quarter earnings per share, which fell to 91 cents from $1.04 a year ago. But even excluding that one-time fine, EPS of $1.08 would have missed the average analyst estimate compiled by FactSet of $1.10.

The miss comes as a measure of how efficient the bank is in generating profits - return on tangible common equity - came in at 9.4%, well below its intermediate-term target of 16% to 18%. Even if the impact of the government fine was excluded, ROTCE would have been 12.6%.

Total revenue for the quarter through September rose 3.2% to $29.96 billion, below the FactSet consensus of $30.58 billion.

Net interest income, which is what the bank takes in from the spread between what it earns on loans and the interest it pays out on deposits, increased 8% to $16.45 billion, just shy of the FactSet consensus of $16.51 billion, in a sign that higher longer-term interest rates haven't provided the hoped-for boost.

In the global-markets business, sales and trading revenue fell 5% to $5.1 billion, as equities revenue rose 11% to $2.5 billion but fixed income, currencies and commodities revenue dropped 17% to $2.6 billion.

The global-banking business saw revenue edge up 2.6% to $6.21 billion, even as investment banking fees fell 11% to $1.8 billion.

Average loans and leases jumped 13.5% to $278.6 billion in the global wealth and investment management business, while in the consumer banking arm, average loans and leases inched up 0.2% to $321 billion.

Provisions for credit losses of $1.27 billion was down a touch from $1.3 billion a year ago, as a fractional increase in provisions in the consumer banking business was offset by a decline in global banking.

BofA's stock has lost 1.9% in 2026 through Tuesday, while the State Street Financial Select Sector SPDR ETF XLF has edged up 0.1% and the S&P 500 index SPX has gained 14%.

-Tomi Kilgore

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10-14-26 0845ET