8-KFinancial Events

BANK OF AMERICA CORP /DE/ 8-K Report, Material Impairment (Jul 22, 2010)

Filed July 22, 2010For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

Bank of America Corporation (BAC) filed an 8-K on July 22, 2010, to disclose a significant expected goodwill impairment charge related to its Global Card Services business segment. This charge is a direct consequence of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, specifically the Durbin Amendment, which will regulate interchange fees for electronic debit transactions. The company anticipates a material reduction in future revenues from its debit card business due to these new regulations. Consequently, BAC estimates a non-cash goodwill impairment charge in the range of $7 billion to $10 billion, expected to be recorded in the third quarter of 2010. While this charge will impact reported earnings, the company emphasized that it will not affect its Tier 1 and Tangible Equity Capital ratios.

Key Highlights

  • 1Bank of America expects a goodwill impairment charge of $7 billion to $10 billion for its Global Card Services segment.
  • 2The impairment is driven by the Dodd-Frank Act's Durbin Amendment, which will regulate debit card interchange fees.
  • 3The charge is non-cash and is estimated to be recorded in the third quarter of 2010.
  • 4The company anticipates a material reduction in future revenues from its debit card business.
  • 5The goodwill impairment charge will not impact Bank of America's Tier 1 and Tangible Equity Capital ratios.
  • 6BAC is planning mitigation actions to offset some of the revenue impact, though these may not fully reduce the goodwill impairment amount.

Frequently Asked Questions

The primary reason is the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, specifically the Durbin Amendment. This act will lead to new regulations on interchange fees for electronic debit transactions, which is expected to materially reduce revenues for Bank of America's debit card business.

Bank of America estimates the goodwill impairment charge to be in the range of $7 billion to $10 billion. This non-cash charge is expected to be recorded in the third quarter of 2010.

No, the company stated that the impairment charge, being a non-cash item, will have no impact on Bank of America's reported Tier 1 and Tangible Equity Capital ratios.

Bank of America is implementing a number of actions to mitigate the impact of the lost revenue. However, the company noted that some of these actions might not reduce the goodwill impairment because they could generate revenue for other business segments or be identified and implemented after the impairment charge is recorded.