Bank of America Corp (NYSE: BAC) recently announced that it will incur a net non-cash, pretax charge of approximately $1.6 billion in the fourth quarter of fiscal year 2023. The charge is related to the phasing out of a Bloomberg interest rate benchmark.
However, the bank expects this amount to be recognized back into its interest income in subsequent periods, primarily through 2026. The impact of this accounting treatment is due to the change in interest payments on Bloomberg Short-Term Bank Yield Index (BSBY)-indexed loans to Secured Overnight Financing Rate (SOFR).
The transition from BSBY to SOFR is projected to have a nominal impact on the economics of these loans. BAC noted that the accounting charge reduced its common equity tier 1 (CET1) ratio by eight basis points as of December 31, 2023.
The Bloomberg Index Services Limited announced the permanent cessation of BSBY and all its tenors, effective November 15, 2024. This decision prompted Bank of America to make the necessary adjustments and prepare for the transition.
Investors can expect Bank of America to report its fourth-quarter fiscal year 2023 results on January 12, 2024. This announcement will shed further light on the financial impact of the charge and provide insights into the bank’s overall performance during the period.
The banking industry has been facing various challenges, including mounting bad debts and interest rate pressures. As major US banking giants prepare for their fourth-quarter earnings, the impact of these challenges will be closely observed.
In premarket trading on Tuesday, BAC shares were down by 0.50% at $33.99. The stock’s price action reflects investor sentiment regarding the upcoming earnings announcement and the impact of the charge on Bank of America’s financials.
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Disclaimer: The information in this article is for informational purposes only and should not be considered as financial advice.
