By Agency Reporter

Wednesday, 23 Feb 2011

NEW YORK: Bank of America Corporation, the biggest United States lender by assets, almost doubled a goodwill impairment for its credit card unit to $20.3bn to reflect increased defaults and an almost two-year-old change in rules.

The bank restated federal regulatory filings to record the write down to its FIA Card Services unit in 2009’s first half, the firm said on Tuesday in a statement.

The non-cash charge, which replaced a $10.4bn impairment booked on the unit last year, does not affect “the financial results, safety and soundness or the capital position” of the Charlotte, North Carolina-based parent company, Bloomberg quoted Robert Stickler, a spokesman, as saying.

The write down shows that the credit-card unit’s prospects may have deteriorated more than initially disclosed after the US passed legislation, known as the Card Act, in May 2009 to curb fees and interest-rate increases.

In November, the bank said some measures would cut annual revenue by $1bn, undermining efforts by Chief Executive Officer, Brian T. Moynihan, to improve returns for investors. The firm on Monday said the act and “deteriorating credit quality” caused the revision.

“This is another sign that the quality of the bank’s consumer-credit book is weaker than what they previously indicated,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “It’s a huge number, and the way they’re disclosing it erodes the bank’s credibility. Why are we waiting until 2011 to do an impairment charge for two years ago?”

The restatement, covering the eight quarters of 2009 and 2010, was made in reports filed with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, the Bank of America said.

The lender had previously tested goodwill for entire business segments rather than subsidiaries, Stickler said. The company identified the charge to its credit-card unit last year after “we changed our processes and looked more closely at legal entities underlying the businesses,” he said.

Goodwill is an intangible asset on a firm’s balance sheet representing the premium paid over the market value of assets in an acquisition. Moynihan’s predecessor, Kenneth D. Lewis, spent $35bn for MBNA Corporation in 2006, then the largest US card issuer.

“They’re trying to reevaluate their businesses in light of changing regulations,” said Jonathan Finger, whose family-owned investment company, Finger Interests Limited, owns 1.1 million Bank of America shares. “While it’s a non-cash charge, it does perhaps signal weaker profitability in the card business, and that concerns me,” he added.

The Bank of America said last month that the loss in its cards division, which includes credit and debit units, widened to $6.6bn in 2010, from $5.3bn in 2009, on the $10.4bn write down last year tied to debit-card regulation. Excluding the charge, the business would’ve posted profit of $3.8bn as credit-card repayment rates improved, the company said.

Investors, including Finger, who led a proxy fight that helped drive Lewis into retirement at the end of 2009, have said that the former CEO overpaid while seeking to expand Bank of America’s operations.

Lewis agreed to pay $29 a share for Merrill Lynch & Company the weekend before Lehman Brothers Holdings Incorporated collapsed in 2008. The $50bn deal was a “crazy price,” billionaire investor Warren Buffett told the Financial Crisis Inquiry Commission, according to remarks released this month.

Bank of America acquired Calabasas, California-based Countrywide Financial in 2008 in a stock swap originally valued at $4bn. The company announced in January that it would write down those operations by about $2bn.

 

Source: Punch