Bank of America reports a day after a $1.2 billion money-laundering penalty. Here is what it covers

Bank of America walks into its third-quarter earnings report this morning carrying a fresh and unusually large regulatory bill. Late Tuesday, the Treasury Department announced more than $1.21 billion in penalties against the bank for violations of anti-money-laundering and sanctions laws.

What regulators found

Treasury's Financial Crimes Enforcement Network, known as FinCEN, assessed a $1.2 billion penalty, which it called the third-largest in Treasury history. That amount credits a $750 million civil money penalty from the Office of the Comptroller of the Currency, the largest in the OCC's history. The Office of Foreign Assets Control separately reached an $11.6 million settlement over more than 400 apparent sanctions violations, including payments tied to programs targeting Russia and Iran.

According to Treasury, the bank failed to report more than $5 billion in suspicious transactions on time, and more than $1 billion of that activity involved national security and other priority illicit-finance risks. Treasury said the bank leaned so heavily on tips from law enforcement and other banks, rather than its own automated controls, that it effectively outsourced much of its detection work.

As part of its resolution with FinCEN, Bank of America admitted that it willfully violated the Bank Secrecy Act. The consent order requires it to hire an independent third party to review past transactions, find suspicious activity it missed, and report it.

The OCC said the problems continued after the bank agreed to a cease-and-desist order in December 2024 that required it to fix its compliance program.

What it means for today's results

The bank said in statements to CNBC and Reuters that the penalties will appear in its third-quarter results as a $1.2 billion non-tax-deductible charge, reducing net income by about 17 cents a share. It said remediation costs are already reflected in its current expense base and that it is far along in fixing the problems.

That makes this morning's headline numbers harder to compare with forecasts. Published consensus estimates vary by provider: Benzinga put the expectation at $1.11 a share on revenue of $30.69 billion, while PreMarketPrice listed $1.16 a share and $31.32 billion. It is not always clear whether a given estimate includes the charge, so the per-share figure excluding the penalty may be the more useful comparison.

Shares closed Tuesday down 1.1% and fell between about 2% and 2.7% in after-hours trading after the announcement, according to CNBC, Reuters and Benzinga.

The buyback question

UBS analyst Erika Najarian wrote that the penalty could add to concerns about higher expenses and about whether Bank of America can keep up its share repurchases of roughly $6 billion a quarter, according to Reuters. Investors will listen for any change to that pace on the call.

Morgan Stanley reports too

Morgan Stanley also releases results before the open. As with Bank of America, consensus figures differ by source: Benzinga cited $2.91 a share on revenue of $19.95 billion, while PreMarketPrice listed $3.17 a share and $20.87 billion. Its shares were little changed after hours.

Morgan Stanley's results lean more on trading, investment banking and wealth management than on lending, so they will add to the picture of capital-markets activity that Goldman Sachs and JPMorgan began on Tuesday.

The backdrop from Tuesday

The first round of big-bank reports drew a mixed reaction. JPMorgan Chase fell about 0.9% after a rare earnings miss, Citigroup lost about 5.6% and Wells Fargo about 3.1%, while Goldman Sachs gave up a strong premarket gain to finish slightly lower. The financial sector ended the day down about 0.4%.

What to watch

For Bank of America: net interest income and its outlook, credit card and consumer loan losses, any update on the compliance remediation and the independent review, and the buyback pace. For Morgan Stanley: trading revenue, advisory fees and net new assets in wealth management. Both reports land before the 8:30 a.m. inflation data, so the first moves in their shares may be tangled up with the market's reaction to CPI.