Bank of America takes $1.6 billion charge tied to Libor transition

(Bloomberg) — Bank of America Corp. took on about $1.6 billion in fees tied to the finance industry's shift away from the London interbank offered rate index, a cost the company said it would eventually recoup as income.

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The pre-tax net non-cash charges were recorded in the fourth quarter of 2023, and “were reflected in revenue through market making and similar activities,” it said in a filing on Monday. The bank said it expects to “rerecognize” $1.6 billion to the company's interest income in subsequent periods through 2026.

As part of the shift away from LIBOR, alternatives have been created including the Bloomberg Short-Term Bank Yield Index. This index will close permanently on November 15th. As a result, the Bank has determined that it is required to “de-allocate” certain interest rate swaps used in cash flow hedges from November 2023, and “reclassify to earnings any amounts recognized in the accumulated equity other comprehensive income category that relate to forecast cash flows that were not It is now expected to happen.

The charge reduced the company's Tier 1 common stock ratio by eight basis points as of the end of 2023. Bank of America is scheduled to report fourth-quarter 2023 results on Friday.

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

“This looks to us like a one-time accounting charge that will only impact reported earnings and will have a minimal impact on capital,” Scott Sievers, an analyst at Piper Sandler & Co., said in a note Monday commenting on Bank of America's announcement.

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Separately, Dallas-based Comerica Inc. also said Monday it would take $91 million in non-interest income from a similar accounting change tied to the index's discontinuation. This was offset somewhat by the non-cash pre-tax benefit of $3 million in net interest income, and the bank said it expects to recover these fees over time, mostly in 2025 and 2026.

Comerica also said the fourth quarter will include $109 million from the Federal Deposit Insurance Corporation's special assessment and $25 million in expenses from a cost-reduction initiative. The Texas bank is scheduled to announce fourth-quarter results next week.

–With assistance from Diana Lee.

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

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