BofA Takes a $1.6 Billion Charge Tied to LIBOR Transition
Comerica Inc. will take a charge of $91 million in non-interest income from a similar accounting change tied to the index being discontinued.
Bank of America Corp. took a roughly $1.6 billion charge tied to the finance industry’s shift away from the London Interbank Offered Rate (LIBOR) benchmark, a cost the company said will eventually be made up as income.
The net non-cash, pretax charge was booked in the final quarter of 2023 and “presented in revenue through market making and similar activities,” Bank of America said in a filing Monday. The bank said it expects the $1.6 billion will be “recognized back” into the company’s interest income in subsequent periods through 2026.
As part of the shift away from LIBOR, alternatives including the Bloomberg Short-Term Bank Yield Index were created. That index will be permanently shut down on November 15. As a result, the bank determined it was required “to ‘de-designate’ certain interest-rate swaps used in cash flow hedges” as of November of 2023 and “reclassify into earnings any amounts recognized in the accumulated other comprehensive income category of shareholders’ equity that relate to forecasted cash flows that are now no longer expected to occur.”
The charge reduced the company’s common equity tier 1 ratio by 8 basis points (bps) as of the end of 2023. Bank of America is scheduled to report results for the fourth quarter and for 2023 on Friday.
“This strikes us as a one-time accounting charge that will affect only reported earnings and have just a minimal impact on capital,” Piper Sandler & Co. analyst Scott Siefers said in a note Monday commenting on Bank of America’s announcement.
Separately, Dallas-based Comerica Inc. also said Monday it will take a charge of $91 million in non-interest income from a similar accounting change tied to the index being discontinued. That was somewhat offset by non-cash pretax benefit of $3 million in net interest income, and the bank said it expects to earn back the charge over time, mostly in 2025 and 2026.
Comerica also said the fourth quarter will feature a $109 million expense from the Federal Deposit Insurance Corp.’s (FDIC’s) special assessment and a $25 million expense from a cost-cutting initiative. The Texas bank is set to report fourth-quarter results next week.
Copyright 2024 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.