BofA Takes 16 Billion Charge Related to Libor Transition

BofA Takes $1.6 Billion Charge Related to Libor Transition

(Bloomberg) – Bank of America Corp. took a hit of around $1.6 billion related to the financial industry's move away from the London Interbank Offered Rate benchmark. According to the company, these costs will ultimately be offset as revenue.

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The net non-cash charge before taxes was recorded in the final quarter of 2023 and “represented in revenue from market making and similar activities,” it said in a filing Monday. The bank said it expects the $1.6 billion to be reflected back into the company's interest income in subsequent periods through 2026.

As part of the move away from Libor, alternatives were created, including the Bloomberg Short-Term Bank Yield Index. This index will permanently close on November 15th. Therefore, the bank decided that from November 2023 it must “dedesignate” and “reclassify” certain interest rate swaps used in cash flow hedges Cash flows that are no longer expected to occur.”

The fee reduced the company's common equity Tier 1 capital ratio by eight basis points from the end of 2023. Bank of America is expected to report fourth-quarter and 2023 earnings on Friday.

Bloomberg LP, the parent company of the index provider, is also the parent company of Bloomberg News.

“This strikes us as a one-time accounting charge that only impacts reported earnings and has minimal impact on capital,” Piper Sandler & Co. analyst Scott Siefers said in a note on Monday Bank of America's announcement commented.

Separately, Dallas-based Comerica Inc. said Monday it would record a charge of $91 million in noninterest income due to a similar accounting change related to the index's discontinuation. This was somewhat offset by a pre-tax non-cash benefit of $3 million in net interest income, and the bank said it expects to recover this charge over time, primarily in 2025 and 2026.

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Comerica also said it received $109 million from the special assessment of Federal Deposit Insurance Corp. in the fourth quarter. and $25 million from a cost reduction initiative. The Texas bank will report fourth-quarter results next week.

– With support from Diana Li.

(Adds analyst commentary and statement from Comerica starting in fifth paragraph.)

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