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BAC US: USD1.6bn Capital Hit - Transitory and Immaterial

CREDIT RESEARCH

Bank of America (BAC US) technical announcement (via 8K) of LIBOR-transition related charge of the USD1.6bn... this is non-cash, transitory and therefore immaterial.


  • BoA is transitioning (along with industry) away from LIBOR (towards BSBY and SOFR) and BBG has announced the termination of BSBY from 15-Nov-24. This means the bank has to "de-designate" certain IR swaps out of cash flow hedging against loans and into shareholders' equity. This will hit earnings by USD1.6bn (pre-tax and non-cash) and CET1 by 8bp (immaterial).

  • This will, largely by 2026, reverse through revenue uplifts and is simply a failure of US GAAP to allow the redesignation of the hedges to SOFR-basis meaning, much as the hedges are still in place, they now have to be cash (not accrual) accounted.
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