Bank of America (BAC) reported a much smaller profit in the third quarter amid significant legal costs tied to a settlement with the Department of Justice.
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The nation’s second-largest bank said Wednesday its earnings fell to $168 million from $2.5 billion in the year-ago period. The third-quarter results include a litigation charge of $5.6 billion compared to last year’s charge of $1.1 billion.
On a per-share basis, Bank of America booked a loss of one cent a share. Wall Street analysts expected a steeper per-share loss of nine cents.
Revenue slipped 1.5% to $21.21 billion, below the consensus estimate of $21.36 billion. Bank of America shares retreated 1.8% to $16.23 in pre-market trading.
In August, Bank of America agreed to a $16.7 billion deal to settle allegations that it sold faulty mortgage-backed securities leading up to the 2008 financial crisis. Other banks like J.P. Morgan Chase (JPM) also reached settlements over the issue.
Bank of America’s settlement is the largest ever between the U.S. government and a single company. The Charlotte, N.C.-based bank set aside funds over multiple quarters to cover the expected settlement.
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Trading revenue was a bright spot in Bank of America’s third-quarter report, following in the footsteps of its peers. Excluding adjustments to the value of the company’s debt, trading revenue improved 9.2% year-over-year to $3.27 billion. Fixed income, currencies and commodities revenue led the way with an 11% gain, and equities revenue increased 5.9%.
On Tuesday, J.P. Morgan and Citigroup (C) reported higher trading revenue in the latest quarter, driven by higher market volatility.
Bank of America’s investment banking fees climbed 4% to $1.4 billion, and the global banking unit saw its profit increase 24% to $1.41 billion.
Earnings at the consumer and business banking unit, which includes Bank of America branches, edged higher to $1.86 billion from $1.79 billion. However, total loans and leases were down 4.6%.
Mortgage lending has been a drag on earnings for banks due to weaker refinancing activity. Bank of America said third-quarter legal costs weighed on its consumer real estate division, which logged a $5.18 billion loss. The business lost $990 million a year earlier and $2.8 billion in the second quarter.
Consumer real estate revenue fell 30% to $1.1 billion amid lower mortgage originations.
Non-interest expense jumped to $19.74 billion from $16.39 billion in the same period last year. When stripping out the legal charges, expenses were down 7%.
Bank of America also booked higher provisions for bad loans. Credit-loss provisions rose to $636 million, up from $296 million.