Tuesday, February 22, 2011

Another Day, Another Charge-off

BofA CEO Brian Moynihan
should be worried.

[Bloomberg--Feb. 22] Bank of America Corp., the biggest U.S. lender by assets, almost doubled a goodwill impairment for its credit-card unit to $20.3 billion to reflect increased defaults. The non-cash charge replaces a $10.4 billion impairment booked on the firm's FIA Card Services unit last year.

The writedown shows that the credit-card unit's prospects may have deteriorated more than initially disclosed after the U.S. 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 $1 billion, undermining efforts by Chief Executive Officer Brian T. Moynihan to improve returns for investors. The firm yesterday said the act and "deteriorating credit quality" caused the revision. The restatement covers the eight quarters of 2009 and 2010.

"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 UNC-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?"

[Last week Christopher Whalen of Institutional Risk Analytics lambasted both Wells Fargo and Bank of America for sandbagging on unrecognized losses stemming from toxic residential mortgage-backed securities:

WFC and BAC face potentially catastrophic losses from private label RMBS claims from investors and/or insurers. If you look at the double-digit loss experience data on private label RMBS, and then compare this actual experience with the loss disclosure from BAC (WFC has provided none), the two pictures simply do not coincide.]

Now for the mark-down:

Friday (2/18) . . . . . . . . . . . . . . . . . . . . . . Tuesday (2/22)

BofA's stock takes a hit.

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