Bank of America Takes $1.6 Billion Charge Due to Shift Away from LIBOR Benchmark, Expects Future Income Compensation

CHARLOTTE, N.C. – Bank of America Corp. has taken a significant charge of around $1.6 billion related to the finance industry’s transition away from the London Interbank Offered Rate (Libor) benchmark. However, the company reassures that this cost will eventually be recouped as income.

The non-cash, pretax charge was recorded in the final quarter of 2023 and is expected to be recognized as revenue through market making and similar activities. Bank of America anticipates that the $1.6 billion will be gradually “recognized back” into the company’s interest income over the course of the next few years until 2026.

In alignment with the industry’s shift away from Libor, alternative benchmarks like the Bloomberg Short-Term Bank Yield Index were established. Nevertheless, this index is set to be permanently discontinued on November 15. Consequently, Bank of America had to “de-designate” certain interest-rate swaps used in cash flow hedges, thus resulting in the need to reclassify amounts associated with forecasted cash flows that are no longer expected to occur.

This charge has reduced Bank of America’s common equity tier 1 ratio by eight basis points as of the end of 2023. The bank is scheduled to report its fourth quarter and full-year 2023 results later this week.

Meanwhile, Dallas-based Comerica Inc. also revealed that it will face a charge of $91 million in noninterest income due to a similar accounting adjustment connected to the discontinuation of the index. However, this charge is expected to be offset mainly in 2025 and 2026, with a non-cash pretax benefit of $3 million in net interest income.

Comerica, like Bank of America, also disclosed other financial factors affecting its fourth-quarter results, including a $109 million charge from the Federal Deposit Insurance Corp.’s special assessment, and a $25 million expense from a cost-cutting initiative.

In summary, Bank of America has reported a substantial charge of $1.6 billion tied to the industry’s shift away from Libor. However, the company maintains that this cost will eventually be offset as income in the coming years. Comerica Inc. has also announced its own charge of $91 million due to a similar accounting adjustment related to the discontinuation of the index. Both banks expect to recover these charges over time, with Bank of America anticipating recouping the amount through 2026.