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.