Bank of America Faces $1.2 Billion Fine Ahead of Q3 Earnings

A $1.2 billion penalty from the US Treasury landed at Bank of America on the eve of its third-quarter earnings release.

The Treasury Department levied over $1.21 billion in penalties against the nation's second-biggest bank on Tuesday, covering anti-money-laundering and sanctions violations. According to the bank, the charge reduces third-quarter profit by roughly 17 cents per share.

A $1.2 Billion Penalty Arrives Just Before Bank of America's Q3 Results

The fines, exceeding $1.21 billion, originate from three separate Treasury bodies.

• $1.2 billion from FinCEN: The Financial Crimes Enforcement Network levied the third-biggest penalty in Treasury history.
• $750 million from the OCC: The Office of the Comptroller of the Currency handed down its largest-ever fine, included in FinCEN's total.
• $11.66 million from OFAC: The Office of Foreign Assets Control reached a separate settlement concerning 475 apparent sanctions breaches.

The bank acknowledged in a news release that it willfully broke the Bank Secrecy Act. Treasury noted that Bank of America did not file timely reports on suspicious transactions worth over $5 billion.

More than $1 billion of those transactions were tied to national security or other high-priority threats, among them flows linked to Chinese money laundering rings.

How the Fine Affects Wednesday's Earnings Report

A representative for Bank of America detailed the financial hit in a statement.

“Our third-quarter results will include a non-tax-deductible charge of $1.2 billion impacting net income by approximately 17 cents per share. We have already dedicated substantial personnel and resources to our ongoing remediation efforts, and those costs are in the current expense base,” the spokesperson said.

The representative added that the bank has invested billions in technology and assigned thousands of employees to combat financial crime. Remediation efforts are progressing significantly, the bank stated.

The market responded ahead of the earnings release. Bank of America shares ended Tuesday at $53.96, a 1.14% decrease from Monday's $54.58. After the penalty was disclosed, the stock fell another 2.29% in extended trading to $52.73.

Analysts Had Already Lowered Expectations for the Quarter

The Zacks consensus projects earnings per share of $1.12 on revenue of $30.62 billion. That EPS estimate was reduced from $1.18 just a month earlier.

CEO Brian Moynihan cautioned in September that investment banking fees would decline by at least 10% compared with the prior year. He forecast fees between $1.6 billion and $1.8 billion, short of the approximately $2 billion analysts had anticipated. The stock dropped over 5% on that news.

Bank of America is set to report before Wednesday's market open, one day after competitor JPMorgan fell short of analyst forecasts. The results are expected around 6:45 a.m. ET, followed by an investor conference call at 8:30 a.m.