BofA says it's ready to 'move forward' after $1.21B penalty

• Key insight: CEO Brian Moynihan called the anti-money-laundering matter "resolved," with the penalties already paid and future remediation costs already accounted for.
• Expert quote: "It should not impact our clients in any way." — BofA Chief Financial Officer Alastair Borthwick

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One day after getting hit with $1.21 billion in penalties over anti-money-laundering shortfalls, Bank of America sought to reassure investors that the worst is over.

During Wednesday's third-quarter earnings call, BofA's top executives repeatedly told analysts that the matter is now settled, the fines have been paid, and the measures needed for remediation are already baked into the bank's projected expenses.

"The key is we've resolved the government discussion in the AML area," CEO Brian Moynihan said on the call. "That penalty is paid, in the third quarter. The expenses are in the run rate."

On Tuesday, three different bureaus of the U.S. Treasury Department announced fines against the nation's second-largest bank: $1.2 billion from the Financial Crimes Enforcement Network, $750 million from the Office of the Comptroller of the Currency and $11.6 million from the Office of Foreign Assets Control. Fincen agreed to credit BofA for their penalties paid to the OCC, reducing the bank's tab to $1.21 billion.

In a statement, Fincen said it was punishing BofA "for its failure to mitigate and report priority national security risks," including Chinese money laundering. Separately, the OCC pointed to the bank's "deficient and ineffective" AML program, while OFAC accused the bank of violating sanctions against Russia, Iran and other countries.

"When a bank of this size fails to meet its anti-money laundering and sanctions obligations, the consequences extend far beyond its own walls," Treasury Secretary Scott Bessent said in a statement. "Today's actions send a clear message that even the biggest financial institutions are not above the law."

During Wednesday's call, Moynihan emphasized that BofA takes its AML responsibilities seriously, and had already spent billions on technology and personnel to fight financial crimes.

"We understand the seriousness of compliance, and we're responsible for getting it right," Moynihan said. "The team is … committed to completing the work required to be addressed by the regulators."

When asked whether the penalties and other remediation measures might constrain BofA's business, Chief Financial Officer Alastair Borthwick answered with an emphatic "No."

"There's no asset cap here, so there's nothing there," Borthwick said. "It won't crowd out anything either, because we've invested the technology and we've invested the people that we feel like we need to get the work done. … It should not impact our clients in any way."

At least partly as a result of the fines, BofA fell short of Wall Street's expectations in the third quarter. Earnings per share for the bank were 91 cents, down from $1.04 in the same period a year earlier.

Net income came in at $6.9 billion, down 17% from last year's third quarter. Revenue, however, rose by about 3%, reaching $30 billion.

But the pain from regulators wasn't the only problem. Excluding the AML penalties, BofA reported adjusted earnings per share of $1.08, which still fell short of analysts consensus estimate of $1.11, according to S&P Capital IQ.

Net income for BofA's global markets unit was $1.2 billion, marking a 25% drop from the year-ago period. Moynihan attributed much of this slide to bond prices, which plummeted during the third quarter.

"While the market's activity, because of our strong business mix towards fixed income, hit us, we still made a lot of money trading this quarter," the CEO said.

Meanwhile, the global banking took in $2 billion, down 4.5% year-over-year — driven at least partly by an 11% decrease in investment-banking fees.

David Chiaverini, an analyst at Jefferies, called the results a "modestly weaker print" for BofA.

"We view the quarter as lighter, mostly on fees, as Markets missed and results came in a bit weaker than the prior guide," Chiaverini wrote in a research note.

As for the bank's regulatory woes, he was not overly concerned.

"While the charge is a meaningful one-time hit, we believe remediation costs are largely embedded in the current expense base," Chiaverini wrote. "The key debate is how long the consent order could be in place and the extent to which it could impede operations, if at all."

That assessment largely echoed the views of BofA's leaders, who seemed eager to turn the page.

"We have agreed to call this a settlement and move forward," Moynihan said. "We have a clear understanding of what we need to do, and we're doing it."