Bank of America Corp. on Monday said it would take a noncash pretax charge of about $1.6 billion in its fourth-quarter report related to the global transition away from an index used to replace the London interbank offered rate, or Libor.
Bank of America
BAC,
said the $1.6 billion net impact is expected to be added back into its interest income in subsequent periods, largely through 2026, according to a filing.
The accounting adjustment follows the discontinuation of the Bloomberg Short-Term Bank Yield Index, which Bank of America has been using as a way to calculate rates on some of its commercial loans.
The BSBY has been used as a replacement for Libor but proved to be less popular with banks than the secured overnight financing rate, or SOFR, to reflect the cost of overnight borrowing.
Bloomberg Index Services Limited announced in November that the BSBY would officially go away on Nov. 15, 2024.
As part of that transition, Bank of America was required to “de-designate” certain interest-rate swaps used in cash-flow hedges of certain BSBY-indexed loans.
The bank is reclassifying into earnings any amounts recognized in the accumulated other comprehensive income category of shareholders’ equity that relate to forecast cash flows that are now no longer expected to occur, according to the filing.
The dollar amount of that reclassification is $1.6 billion.
The accounting adjustment comes after the U.S. Federal Reserve and other banking regulators moved to end the use of the Libor interbank interest-rate benchmark as of the middle of 2023.
Bank of America said it had started using the SOFR and BSBY rates in 2021 in various lending agreements, including commercial loans.
Bank of America’s stock was down by 1.9% on Monday.
The bank reports fourth-quarter earnings on Friday.
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