BofA’s Treasury Troubles & The Kroger-Albertsons Grocery Battle

John Crotteau (0:03)

The biggest grocery chains in the United States have beef, with each other. We check out the latest in their legal drama.

Emily Milliron (0:09)

And Bank of America is hit with a billion dollar money laundering penalty, but that's not the only reason its shares are falling.

John Crotteau (0:16)

For Wednesday, October 14th, it's Brew Markets Daily. I'm John Crotteau.

Emily Milliron (0:19)

And I'm Emily Milliron. Let's get moving and grooving.

John Crotteau (0:30)

Emily, thank you so much for joining us in studio today. Happy to be here.

Emily Milliron (0:34)

Good.

John Crotteau (0:34)

There's so much to talk about. We're going to get into the two biggest grocery store chains that are suing one another. And Netflix, viewership is down, layoffs are coming. We're going to get into that. But more importantly, we have today's fresh inflation reading. And yesterday, the banks kicked off earnings season and one bank is having a tough 24 hours. It is.

Emily Milliron (0:56)

It's Bank of America, a $1.2 billion treasury fine on Tuesday night followed by earnings this morning that showed profit down 17% and a stock price that spent the day reeling from the results. But the actual banking part of the bank was mostly fine. Taking a deeper look at their earnings before we get into the fine of it all, they earned $6.9 billion in Q3, $0.91 a share, and you strip out the treasury penalty and that's around $1.08, which is still $0.02 shy of the $1.10 Wall Street wanted. Revenue came in around $30 billion, about half a billion light, John.

John Crotteau (1:32)

All right. So the weak spot was the trading desk, getting to the specifics, specifically bond trading. When the bank calls fixed income, that fell 17%.

And here's why. Interest rates jumped in the quarter and when rates jump, clients stop trading. Bank of America is especially big in those client areas, corporate credit, mortgages, municipal bonds. And CEO Moynihan said on the call, when customers stop cold like they did last quarter, that happens. So that's what we saw. Equities went the other way, up 10%, which was a record third quarter for the bank. The market has been volatile. And as we keep saying every day, the banks have seen increased equity trades through that volatility. Put fixed and equity together and trading fell 5%.

Now, the part that worked. Moynihan called them, quote, the Main Street businesses, consumer banking, wealth management and lending to companies. And that's what I think of when I think of Bank of America and Merrill Lynch, which it owns. Loans grew for a 10th straight quarter, deposits stayed above $2 trillion, and asset management fees jumped 17%.

Emily Milliron (2:37)

Yeah, I like the Main Street businesses. That's a good way of putting it. Let's get into the fine at a hefty price of $1.2 billion that we mentioned earlier. This came from the Treasury's FinCEN. With OCC's record $750 million penalty counted inside of that number, plus a small $11.6 million sanction settlement. What happened was Bank of America admitted it willfully violated the Bank Secrecy Act. The Treasury says it failed to report more than $5 billion in suspicious activity on time and over a billion of that touched priority national security risks, including Chinese money laundering networks and trade-based laundering tied to the southwest border. To be clear, that's a finding about reporting failures and not a ruling that every dollar was criminal.

John Crotteau (3:21)

Yes. What turned the warning into a bill is that BofA was already under a 2024 order to fix that situation that you described. That order came with no fine. Here comes the fine. Treasury says more than a year later, the bank still wasn't escalating suspicious activity to investigators. It's the third largest penalty in Treasury history behind Binance, which was at $3.4 billion and TD Bank at $1.3 billion.

Emily Milliron (3:47)

Yes. Some spicy earnings from BofA compared to Goldman and JP Morgan, who we talked about yesterday. Goldman Sachs killed it and JP Morgan had a rare miss. But one final thing to note for Bank of America is that this earnings hit is a one-time charge. The harder question is the compliance record behind it and whether the trading miss repeats next quarter.

Watch BofA's Net Interest Income Guide, which management says should grow 8% or more in 2027, and whether any further enforcement follows. I don't see any criminal action reported so far.

John Crotteau (4:17)

In a moment, we explore why leadership at the nation's second largest grocery store chain said, dramatic improvement is needed now. But first, this episode is brought to you by Charles Schwab.

Emily Milliron (4:28)