Bank of America fell back on its medium-term 200-300 bp operating-leverage target, not July's 300-400 bp

A guide raised in July was not repeated in October

Bank of America spent this year raising what it expected of itself. It guided in January to some operating leverage, which is revenue growth less expense growth, and by July had lifted the full-year figure to 300 to 400 basis points.

On the day it reported the September 2026 quarter, the chief financial officer was asked about next year. Asked whether the 200-300 basis-point Investor Day target had changed, he said "No, no change there", adding that the first half had been very good, the third quarter slower, and that the company was "back on creating operating leverage" in the fourth quarter. He did not restate July's range for this year. When an analyst, Manan Gosalia, described the 2026 range as two hundred to three hundred basis points on adjusted expense, excluding the settlement charge, the chief financial officer, Alastair Borthwick, said two hundred to three hundred was "generally speaking, the right kind of a zone" and tied it to the medium-term target set at Investor Day.

The quarter ran the other way

By our arithmetic, revenue last quarter rose 3.2% on a year ago while expenses, with a regulatory penalty set aside, rose 6.8%. That is negative operating leverage, the opposite sign to the full-year guidance. The nine months as a whole are still positive by our arithmetic, so the year is not closed.

The fourth quarter would have to close it. By our arithmetic, with adjusted costs flat, reaching the bottom of the guided range needs fourth-quarter revenue near $32.0 billion, above the second quarter's level, the highest of this year's reported quarters.

What gave way was trading. Sales and trading revenue fell sharply from the quarter before. The chief financial officer blamed a sharp rise in rates, which clients did not take well.

The 2027 guide is net interest income, on a turned rate path

What the company did repeat was net interest income, the gap between what it earns on loans and securities and what it pays on deposits. It now expects growth of about 8% this year, up from where it began the year, and by our arithmetic nine months of growth already stand above that. For next year the chief financial officer guided to growth of 8% or more.

That rests on a rate path that has turned over. In January the guidance assumed rate cuts; the October version assumes rises. By our arithmetic, that growth needs net interest income to average at least about $17.6 billion a quarter, above last quarter's $16.6 billion on a fully taxable-equivalent basis. It is the only number for next year the company has put on the table so far, and part of it depends on the same rising rates that, in the chief financial officer's account, hurt trading.

The penalty came after costs were described as tipping over

The chief executive, Brian Moynihan, is recorded in our summary of the July 2025 call as describing these anti-money-laundering costs as tipping over. The day before the results the regulators announced new orders, and the bank booked a regulatory penalty in last quarter's results. By the company's presentation that is a one-off. The remediation is not: Moynihan put this quarter's cost at two hundred million dollars or more.

Two questions went without a date or a figure. Asked whether the third-party review would add expense, the chief financial officer said people and technology were already in the run rate. Asked for the next dated milestone, the chief executive said the timeliness problem was resolved. The call gave neither the review's cost nor a date for the next milestone.

Buybacks carry the per-share result, and capital is tighter

Set the penalty aside and adjusted net income was lower than a year ago by our arithmetic. Adjusted earnings per share still rose, because there were fewer shares. The bank returned more to shareholders than it earned, mostly in buybacks.

Its core capital ratio fell to 10.9% against a 10% regulatory minimum, and part of the fall came from higher rates cutting the value of securities. Management said buybacks continue with one exception: it will wait for final capital rules due in the fourth quarter.

What we will know, and when

On the call, the company did not say whether July's 300-400 range for this year still stands. The only range discussed was the 200-300 medium-term target, which the chief financial officer said had not changed; the company did not say on the call that the July range had been dropped. The chief financial officer said he will likely give guidance for next year during the fourth quarter, and that is where the question gets its answer, alongside the final capital rules and the fourth-quarter trading revenue, which the company does not guide.

This quarter the company restated the guide the numbers supported, extended it by a year, and on the call fell back from July's operating-leverage range for this year to its medium-term target, the one the quarter ran against. The next result will show whether that was a pause or a change of subject.