Bank of America's support for a short-lived interest rate index from Bloomberg L.P. will lead the bank to take a $1.6 billion hit in its earnings report on Friday, though it will earn that money back over time.
BofA was perhaps the leading backer of Bloomberg's Short Term Bank Yield Index, or BSBY, rate, which was designed to play a major role in
But regulators were either skeptical of BSBY or openly combative about its adoption. After the rate
The rate's demise is triggering an accounting shift at Charlotte, North Carolina-based BofA, since derivatives transactions the bank entered to hedge its exposure to BSBY no longer qualify for special treatment under accounting rules.
In a securities filing Monday, the $3.15 trillion-asset bank said it will need to "de-designate" those interest-rate swaps and reclassify how it accounts for them. BofA is taking a noncash, pretax charge of $1.6 billion in the fourth quarter due to that change. But the bank also said it expects to regain that $1.6 billion as interest income over time, with much of that occurring by the end of 2026.
The one-time charge will also cause a decline of eight basis points in the company's common equity tier 1 ratio, Bank of America said.
Analysts described the change as a nonissue, even if it makes the bank's quarterly earnings somewhat noisier than BofA might like. The bank reported $7.8 billion in earnings during the third quarter, so a $1.6 billion hit in the fourth quarter is not insignificant.
Jason Goldberg, a bank analyst at Barclays, said in an email that the change is "much more of an accounting nuisance" than anything. He noted that BofA will earn $1.6 billion over the next few years as it makes up the one-time charge.
Piper Sandler analyst Scott Siefers wrote in a note to clients that the "one-time accounting change" will "introduce some noise" into Bank of America's quarterly earnings but will not have much impact beyond that.
Other banks that used BSBY in loans may also have to make moves to clean up from the index's discontinuation.
Also on Monday, Comerica Inc. in Dallas released an investor disclosure that said it would take a pretax noninterest income charge of $91 million in the fourth quarter due to the BSBY change, along with a $3 million benefit in interest income. Like BofA, Comerica expects to make up the one-time hit over time, with the majority of the benefit coming in 2025 and 2026.
But few, if any, banks likely used BSBY as much as Bank of America, which made loans to several publicly traded companies that referred to the benchmark, according to securities filings that provide details of those loans.
The key feature that made BSBY attractive was that it was credit-sensitive. Like Libor, it moved up when financing conditions were tighter, which meant the interest payments banks received from borrowers reflected any stresses in real time.
By contrast, the Secured Overnight Financing Rate, which has replaced Libor in the United States, is seen as "risk-free" since it's based on some of the safest transactions in the world. SOFR moves very little in times of financial stress, which bankers say does not reflect the fact that it's more expensive for them to fund their operations when markets are tighter.
Bank of America, along with several regional banks, had participated in a
After those meetings, banking regulators said they were open to banks using non-SOFR rates as long as they understood and planned for any risks. But Securities and Exchange Commission Chairman Gary Gensler was openly critical of BSBY, which observers say contributed to its demise.
The developers of Ameribor, another credit-sensitive rate that some community banks have favored, said after Bloomberg decided to shut BSBY that their plans haven't changed.
