Bank of America (NYSE: BAC) shares plunged more than 4% on Wednesday, heading for their worst earnings-day beating in 16 years.
And the timing couldn't have been much worse. Less than 24 hours before the bank released its quarterly numbers, U.S. regulators handed it a $1.2 billion penalty over money laundering and sanctions failures.
Then came the earnings report, showing that third-quarter profits had fallen 17%, from $8.3 billion last year to $6.9 billion.
Regulators uncover $5 billion in suspicious transactions
The U.S. Treasury Department found that Bank of America had failed to properly report more than $5 billion in suspicious financial activity.
We're talking about transactions that should have triggered closer scrutiny but slipped through the bank's compliance system.
“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 risk,” Treasury Secretary Scott Bessent said.
The Office of the Comptroller of the Currency (OCC) imposed the largest individual penalty, fining Bank of America $750 million for running what regulators described as an ineffective anti-money laundering program. That punishment was the biggest in the agency's history.
Another $11.6 million settlement came from the Office of Foreign Assets Control (OFAC), which identified 475 apparent sanctions violations involving restrictions against Russia, Iran, terrorist organizations, narcotics operations, and other prohibited activities.
According to Treasury investigators, the bank processed international payments through sanctioned institutions because of technical failures and mistakes made by employees.
Bank of America's earnings disappoint even without regulatory penalties
The financial punishment isn't the only headache here. Regulators have also issued another consent order, requiring an independent third party to investigate previously undetected suspicious transactions and ensure they're properly reported.
That raises a rather expensive question: How much more will Bank of America have to spend before Washington is satisfied with its compliance systems? Bank of America said in its earnings report:
“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.”
On Wednesday, Chief Financial Officer Alastair Borthwick told reporters that the bank had already assigned thousands of workers to address problems identified under an earlier 2024 consent order.
“We staffed up overtime and we feel like we’re meeting all the obligations in that consent order at this point,” Borthwick said.
Alastair also indicated that another major recruitment effort wasn't necessary, despite the additional restrictions imposed Tuesday. The lender believes its existing workforce can handle the remaining compliance work.
BoFA's quarterly revenue increased 3% to $30 billion, but disappointing trading results and weaker investment banking fees weighed on the bank's underlying performance, giving investors another reason to sell its shares.