🚨 ALERT: The BofA number nobody quoted

$450 billion in noncancelable obligations against $16.3 billion of half-year revenue. It’s going public because nothing else can carry it.

JUST IN: A $6.9 BILLION QUARTER THAT GOT CALLED A FAILURE

Barron’s ran a piece this morning asking whether it’s time for a new chief executive at Bank of America. The bank earned $6.9 billion in three months. Both of those sentences are fair.

I read the earnings release instead of the opinion piece. The number that stopped me was not the fine and not the trading miss.

Strip out the $1.2 billion regulatory charge and costs still grew more than twice as fast as revenue. That is the whole argument, and almost nobody printed it.

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THE BREAKDOWN: THREE DIFFERENT COMPLAINTS WEARING ONE HEADLINE

1. The trading miss is not a firing offense and anyone saying otherwise is reaching. Fixed income fell 17% because rates moved hard and clients stopped transacting, in credit, mortgages and municipals. That happened to everyone. In the same quarter, equities put up a record and were up 10%. Net interest income rose 8%. Charge-offs improved. You do not remove a chief executive because bond desks had a quiet September.

2. The expense line is a real question, and it is his. Revenue up 3%, costs up 14%, or roughly 7% once you take the penalty out. Negative operating leverage is the one thing a bank CEO is unambiguously responsible for, because it is the part that does not depend on the market. The comparison that stings: operating margin has averaged about 21.9% since 2022, against roughly 29.9% at JPMorgan.

3. The compliance failure is the only charge that actually goes to the job. Regulators identified significant deficiencies in 2023. A formal cease-and-desist order landed in December 2024. The problems continued past it, and FinCEN concluded the violations were willful. More than $5 billion in suspicious activity went unreported on time, over $1 billion of it tied to national security risk. That is not a market cycle. That is a control that stayed broken for three years after someone official wrote it down.

4. Here is the defense, and it is stronger than the critics allow. He took the job in 2010 holding Countrywide and Merrill Lynch and a balance sheet plenty of people thought would not survive the decade. He spent years paying out legal settlements that ran past $100 billion and rebuilding capital from nothing. Today: CET1 at 10.9%, charge-offs at 0.44%, $5.1 trillion in wealth balances. And the JPMorgan comparison cuts both ways, because JPMorgan is arguably the best-run bank on earth. Being worth less than Jamie Dimon’s bank is not evidence of failure. Almost everyone is.

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THE FRICTION: WHICH COMPLAINT IS ACTUALLY ABOUT THE JOB

Most of the commentary this week is about a bad quarter. A bad quarter is weather.

Number three is not weather. Number three is a question about whether anybody inside that building could make a thing happen after the government wrote it down twice.

THE MACRO EXTRACTION

Morgan Stanley kept its Overweight and trimmed its target to $61 from $67, which on a $51 stock still implies a decent move. It cut the target multiple to 11.5 times from 12.25. Its phrase was that the stock looks “closer to being de-risked.” That is analyst for: we think the bad news is out, mostly, probably.

The shares are down about 5% on the year, total return. The bank trades near 11.4 times forward earnings against JPMorgan’s 13.5. That gap has been there for years. It is not a reaction to October. It is the market’s standing opinion of the franchise, renewed quarterly, for a long time.

Here is my problem with the whole conversation.

The penalty was $1.2 billion. It cost 17 cents a share and the stock absorbed it inside a week. The executive compensation went $27.8 million, then $35 million, then $41 million across roughly the same stretch of years the control was failing. No individual was charged with anything.

So the accounting works out like this. The institution pays, the shareholders take 17 cents, nobody loses a job, and the lesson arrives as a line item in a quarter that still cleared $6.9 billion.

Meanwhile the rules that failed upward at $5 billion in unreported transactions are enforced with total precision on a guy at the counter in this building trying to deposit cash from selling a truck. He gets the form. He gets the wait. He gets asked where it came from.

That is not an argument for firing anyone. It is an observation about who the compliance system is actually built to inconvenience.

Whether the board moves is their business. The question worth asking out loud is simpler: after sixteen years, what exactly would have to go wrong for the answer to be yes?

— Brook

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