Latest Technology and Financial News

Search Stocks

Bank of America down Slightly on Quarterly Loss

Report A Spam
Facebook Twitter Google LinkedIn StumbleUpon Pinterest Email
Report A Spam

Article(45)
Comments(0)

Philadelphia, Pennsylvania – (StockNewsDesk) – 11/07/2014 — The unexpected legal costs stemming from investigations into Bank of America’s activities in the forex market resulted in BAC’s loss of $232 million in the third quarter. Despite the miss, shares were down less than 1% in premarket trading.

Legal Troubles

Since the collapse of the housing market, banks have been under a microscope as they have settled with regulators over a litany of issues such as subprime lending, securities fraud, and now this latest issue. Bank of America is being investigated over allegations that it rigged key rates, such as the London Interbank Exchange Rate (LIBOR). LIBOR is used as a reference point for a variety of securities and currencies in the forex market.

The forex market is largely unregulated, despite its size dwarfing all other financial markets. There is no single regulatory body, instead Bank of America is being targeted by regulators from Europe, North America, and Asia, adding to its woes. Due to these reasons, Bank of America added $400 million to its legal reserves, which was a major factor in its third-quarter loss.

This news was not unexpected, as Citigroup had recently added $600 million to its legal reserves. The muted price action may reflect that investors had already priced in this news. Many of the largest banks in the world have already added to legal reserves, while others are expected to do so soon.

Bank of America down Slightly on Quarterly Loss

Signs of Optimism under the Surface

Another factor in the constructive price action despite the earnings missed are some real signs of a strengthening business under the surface. Bank of America is the largest bank in the US by customer deposits and number of customers, so its earnings report always gives an interesting peek into the health of the economy.

The performance of Bank of America reflects the resilience and accelerating momentum of the US economy, with steady gains in jobs, GDP growth, and consumer spending. Additionally, the drop in gasoline prices has been a stimulus for the US consumer, so there are good reasons to expect this growth to persist and possibly accelerate. For Bank of America, 4 out of 5 units reported increased net income.

The two biggest increases in income were in the Sales & Trading Division and Investment Banking. Further, Bank of America’s balance sheet improved, as credit quality improved with fewer defaults and an increase in payments. The charge off rate was the lowest in a decade. All of this improvement showed as the company posted an impressive profit without including the one-time charges of the $5.3 billion settlement with the Department of Justice and this $400 million boost in legal reserves.

Stock Price

Bank of America’s stock has had a strong run in 2014. This is despite the bad news coming from these settlements, which investors have digested well with little volatility. Between 2012 and 2014, Bank of America’s stock experienced weakness and failed to materially rally along with the broader market.

One of the reasons was the uncertainty related to the negotiations and settlements with regulatory agencies over conduct in the period leading up to the financial crisis. Investors hate uncertainty, and it is not a coincidence that once the issues were resolved, the stock finally started to rally.

Share your views and Comment below

Connect with:

Search Stocks

Search Articles

LG’s Android G Watch burs…

posted on July 9, 2014 , by Prabir Sinha

Amazon Intensifies Battle…

posted on July 10, 2014 , by James Smith

Farnborough Air Show: Boe…

posted on July 12, 2014 , by Greg Henderson

Citigroup Can Deduct $3 B…

posted on July 16, 2014 , by David Goehst

Apple, IBM form Strategic…

posted on July 17, 2014 , by David Goehst

Recent Comments
  • User AvatarCharlesetta Chipman { Would love to perpetually get updated outstanding weblog ! . } – Feb 25, 3:25 PM
  • User AvatarChanda Hinnant { magnificent issues altogether, you simply won a new reader. What could you recommend about your post that you just made a few days ago? Any... } – Feb 25, 1:17 PM
  • User AvatarLenny Strawther { Outstanding post, you have pointed out some superb points, I likewise conceive this is a very good website. } – Feb 25, 12:31 PM
  • User AvatarJennette Lysaght { I have been absent for a while, but now I remember why I used to love this website. Thanks, I will try and check back... } – Feb 25, 11:41 AM
  • User AvatarWilhemina Strube { I just couldn't go away your web site before suggesting that I really enjoyed the standard info a person provide to your guests? Is going... } – Feb 25, 10:30 AM
  • User AvatarGoogle { GREAT POST.THIS IS A GREAT NEWS. } – Feb 24, 7:22 PM
  • BAC,NYSE:BAC

    Login

    Connect with:

    Register | Lost your password?