Anti-Money Laundering Fine Hits Profits Hard: Bank of America (BAC.US) Q3 Earnings Fall 17%, Missing Expectations

Bank of America Corp (BAC.US) released its Q3 2026 earnings report before the U.S. market open on October 14. Net income (GAAP) for the quarter was $6.933 billion, with diluted earnings per share of $0.91, down from $8.332 billion and $1.04 in the same period last year, a year-over-year decline of about 17%; revenue (after net interest expense) was $30 billion, up 3% year-over-year, but fell short of market expectations of about $30.55$30.69 billion, missing by roughly $550$690 million. The decline was mainly due to approximately $1.2 billion (about $0.17 per share) in regulatory settlement costs booked in the third quarter. Due to deficiencies in its anti-money laundering (AML) and economic sanctions compliance programs, Bank of America Corp has agreed to consent orders with the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN): the OCC fine was $750 million (the largest in the agency's history), the FinCEN fine was $1.2 billion (creditable against the OCC portion), plus $11.6 million paid to the Treasury Department's Office of Foreign Assets Control (OFAC), totaling about $1.21 billion, and is not tax-deductible. Excluding this charge, adjusted net income was $8.1 billion and adjusted earnings per share were $1.08, still slightly below the LSEG consensus estimate of about $1.10. Core operating metrics remained resilient: net interest income was $16.449 billion ($16.6 billion on an FTE basis), up 8% year-over-year; net interest margin (FTE) was 2.16%, up 15 basis points year-over-year. Provision for credit losses was $1.269 billion, roughly flat versus the same period last year; net charge-offs were $1.349 billion, with an annualized net charge-off ratio of 0.44% (down from 0.47% a year earlier), a decrease of $1.4 billion from the same period last year, with the credit card charge-off rate falling to 3.22% (from 3.46% a year earlier). Noninterest expense was $19.722 billion (including the fines), with an efficiency ratio of 66%; excluding the fines, adjusted noninterest expense was $18.5 billion and the adjusted efficiency ratio was 62%. In terms of scale and capital, average deposits were $2.02 trillion, up 2% year-over-year, and average loans were $1.23 trillion, up 6% year-over-year, marking the 10th consecutive quarter of sequential growth. The CET1 ratio (standardized) was 10.9% (versus 11.6% a year earlier); book value per share was $39.26 and tangible book value was $29.14, up 4% and 3% year-over-year, respectively. In the third quarter, $8.3 billion was returned to shareholders, including $2.2 billion in dividends and $6 billion in buybacks. By segment, Consumer Banking net income was $3.521 billion on revenue of $11.572 billion (+4%); Global Wealth & Investment Management net income was $1.540 billion on revenue of $7.118 billion (+13%); Global Banking net income was $1.990 billion on revenue of $6.205 billion (roughly flat, with investment banking fees of $1.8 billion down 11%); Global Markets net income was $1.235 billion on revenue of $5.867 billion (-6%, with FICC revenue down 17% to $2.565 billion and equities revenue up 11% to $2.510 billion). Chairman and CEO Brian Moynihan said the team delivered organic growth and deepened customer relationships, and that despite lower investment banking and trading revenue, commercial loans grew across every client segment. Following the earnings release, as of press time, Bank of America Corp shares fell about 4%. What truly drove sentiment was the massive fine handed down on the eve of the earnings report. Citing serious and persistent violations in anti-money laundering and sanctions compliance, the U.S. Treasury Department announced on October 13 a total penalty of more than $1.21 billion against Bank of America Corp the third-largest fine in Treasury history, of which $750 million was imposed by the Office of the Comptroller of the Currency (OCC), the largest civil penalty in the agency's history. The core facts identified by regulators are: Bank of America Corp admitted to "willfully violating" the Bank Secrecy Act (BSA) of 1970, failing to establish an AML program meeting minimum requirements, failing to conduct necessary due diligence on foreign correspondent bank accounts, and failing to timely file suspicious activity reports. According to disclosures by the Treasury Department and USA TODAY, the bank failed to timely report to regulators more than $5 billion in suspicious transactions, of which over $1 billion involved priority illicit finance risks such as national security, including money laundering networks, fraud, and "potential trade-based money laundering activity with significant ties to the U.S. southwest border." The conduct cited in the consent order occurred between 2018 and 2025. Regulators also criticized the bank for prioritizing revenue growth over compliance issues and for relying excessively on law enforcement inquiries and referrals from other Financial Institutions, Inc., effectively "outsourcing" part of the responsibility for detecting suspicious activity. The OCC stated bluntly that its compliance program was "deficient and ineffective," that its transaction monitoring systems caused suspicious activity reports for massive transactions to be filed late, and criticized the bank for insufficient remediation progress after signing a cease-and-desist order in 2024; Comptroller of the Currency Jonathan Gould called the bank's poor response to BSA deficiencies "unacceptable." As part of the consent order, Bank of America Corp must hire an independent third party to conduct a lookback review of past transactions to identify and report suspected money laundering activity that was not detected at the time. U.S. Treasury 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 American Financial Group, Inc. system to significant illicit finance risks." "Today's action sends a clear message even the largest Financial Institutions, Inc. are not above the law."