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Bank of America may incur a $12 billion pretax charge in the first quarter of 2010 to comply with an accounting rule governing how it records credit card losses, an analyst said on Monday.
Jefferson Harralson, an analyst at Keefe, Bruyette & Woods, wrote that the charge relates to $150 billion of credit card receivables, home equity securitizations and asset-backed conduits that will move onto the largest U.S. bank's balance sheet.
"When these assets move on the balance sheet, Bank of America will most likely have to build a substantial amount of reserves for losses on these assets," Harralson wrote.
The analyst called the charge an "accounting adjustment" that is "one-time in nature." He said a majority of the assets at issue have been included in the bank's regulatory capital ratios since the first quarter of 2008.
"When the structures come back on (balance sheet) is when you need to put your reserves on," Chief Financial Officer Joe Price said on a Friday conference call.
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Sharon Lorimer |
Bank of America's [BAC
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] credit card unit lost $1.62 billion in the second quarter, limiting overall net income for the three-month period to $3.22 billion.
Chief Executive Kenneth Lewis said new credit card rules in 2010 could reduce card revenue that year by $700 million.
JPMorgan Chase [JPM
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] Chief Executive Jamie Dimon made a similar forecast for his bank, the nation's second-largest.
Harralson lowered his 2009 and 2010 earnings forecast for Bank of America, yet maintained his "outperform" rating and 12-month price target of $16.50.
He said the Charlotte, North Carolina-based bank could "have a fairly strong rebound" once it is able to stop adding reserves for bad loans, and said its Jan. 1 purchase of Merrill Lynch should be beneficial over time.
Bank of America shares closed Monday down 65 cents, or 5 percent, at $12.24 on the New York Stock Exchange.
(Ed. Note: KBW later changed its BofA outlook. Story here.)
Data is a real-time snapshot *Data is delayed at least 15 minutes