NEW YORK (TheStreet) – With a market capitalization of $182 billion, Bank of America (BAC) , the world's fifth-largest bank and second-largest in the U.S. by total assets, knows how to make money, and it knows how to spend it.
But after the release of its third-quarter earnings, investors have learned that BofA's spending hasn't been the type of that generates shareholder value.
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Legal expenses, including a third-quarter charge of $5.3 billion, stemming from a settlement with the Department of Justice, continue to eat into BofA's profits. And there is no end in sight, following last Thursday's announcement that the bank will now take another $400 million charge in the third quarter to cover litigation costs, this time related to an inquiry in its foreign-exchange business.
Nevertheless, shares of BofA are trading Monday at about $17, up about 11.5% for the year to date, because investors know that the bank still has plenty of money to meet any dire situation, thanks to stricter federal regulation. But that doesn't mean that there are better investments out there.
Since taking over the bank in 2010, Chief Executive Brian Moynihan has delivered five quarterly losses, causing investors to wonder when the continuing litigation costs that the bank has been unable to offset with higher revenue will stop.
For Moynihan, it has been one legal headache after another. Following the bank's record $16.7 billion settlement with the U.S. government over mortgage probes this year, questions are being raised about the bank's foreign-exchange business.
In a recent regulatory filing, BofA disclosed that it has been engaged in "separate advanced discussions with certain U.S. banking regulatory agencies to resolve matters related to its foreign-exchange business."
In fairness, BofA isn't the only one suffering from these issues. Thursday's revelation follows statements made by both Citigroup (C) and JPMorgan Chase (JPM) that suggests that they also face similar allegations.
Last month, Citigroup cut $600 million from its third-quarter earnings, saying that regulatory agencies in the U.S., Switzerland and the United Kingdom had made inquires about its foreign-exchange business. Last week, JPMorgan said that the Department of Justice had opened a criminal investigation into its foreign-exchange business.
But though all three banks share in the legal woes, BofA is struggling more in terms of key metrics.