Bank of America on Wednesday reported results that fell short of consensus on both the top and bottom lines.
Even excluding a $1.21 billion fine for — and this gave me the chuckles on Tuesday — “effectively outsourc[ing]” crucial compliance functions in an effort to save money, EPS was just $1.08. Consensus expected $1.10. Overall revenue of $30 billion was short of Street estimates by about $700 million.
On the off chance you didn’t get around to perusing Tuesday’s series of government handouts detailing BofA’s alleged compliance deficiencies, they make for an amusing skim. The bank, Treasury and OFAC said, “fail[ed] to mitigate and report priority national security risks, including Chinese Money Laundering Networks” and committed nearly 500 “apparent violations of sanctions programs targeting Russia, Belarus, Iran, Burma, Somalia, narcotics and global terrorism.”
Bad as that sounds, it’s a “Who among us?” / “He that is without sin” kind of deal when it comes to major banks. More concerning than the regulatory violations and associated fine — which Scott Bessent boasted was “the third-largest penalty in Treasury history” — was BofA’s failure to keep up with the Joneses in equities trading, where revenue actually fell 10% YoY to $2.51 billion.
As the figure above shows, Q3 was another bonanza for Wall Street’s equity trading desks. BofA’s YoY decline stands out not only in that context, but also for the sharp drop-off from Q2, when the bank logged $3.62 billion in equities revenue, up 70% YoY.
Also on Wednesday morning, Morgan Stanley said equities trading revenue rose more than 40% to $5.8 billion. That was almost a billion ahead of estimates and left Ted Pick’s guys (and gals) just shy of their rivals at Goldman, who racked up a ridiculous $6.44 billion in Q3.
Consistent with the Q3 theme across Wall Street, FICC was weak at both BofA and Morgan, with revenue falling 17% and 7%, respectively.
In IB, BofA’s fees dropped 11% YoY to $1.8 billion. That wasn’t a surprise, or at least it shouldn’t have been. Brian Moynihan said last month at a conference that investment banking fees would drop “at least” 10% in Q3.
By contrast, Morgan Stanley managed a 2% increase in IB, where $2.6 billion in revenue came courtesy of a predictably good showing for advisory and ongoing strength in debt underwriting.
As the figure above shows, Q3 marked the fifth straight quarter during which Morgan Stanley’s debt underwriting revenue topped $700 million.
Morgan reported another record for its key Wealth Management business, where net revenues rose 10% to $9.1 billion. The net new assets line showed an impressive gain thanks in no small part to “IPO-related flows.” (Morgan was of course heavily involved with the SpaceX offering.)
Coming back to BofA, NII rose 9% to $16.6 billion with the adjustment, $16.45 billion without it. That was basically in line.
On a call with the media Wednesday, Moynihan’s deputy Alastair Borthwick said the Treasury fine hasn’t changed the bank’s medium-term goals.
BofA’s already completed a lot of work on the regulatory consent order, Borthwick went on, adding that the firm’s “staffed up” to meet its obligations and doesn’t likely need to add additional staff from here to handle the penalties.
In his own perfunctory remarks ahead of the analyst call, Moynihan said that although IB and trading could’ve perhaps been better in Q3, commercial lending was robust. The bank still has “momentum,” and it shows in deposit growth, the wealth business and consumer activity.
