Bank of America Corp. almost doubled a goodwill impairment charge for its credit-card unit, to $20.3 billion, to reflect increased defaults and an almost two-year-old change in rules.
The banking company said Monday that it had restated its federal regulatory filings to record the writedown in its FIA Card Services unit's results for 2009's first half. The noncash charge, which replaced a $10.4 billion impairment booked for the unit last year, does not affect "the financial results, safety and soundness or the capital position" of the Charlotte, N.C., parent company, said Robert Stickler, a spokesman.
The writedown shows that the credit-card unit's prospects may have deteriorated more than initially disclosed after Congress enacted measures, known as the Card Act, in May 2009 to curb fees and interest rate increases. In November, the company said some measures would cut annual revenue by $1 billion, undermining efforts by Chief Executive Brian T. Moynihan to improve returns to investors. The company said Monday that the law and "deteriorating credit quality" prompted the revision.
"This is another sign that the quality of the bank's consumer-credit book is weaker than what they previously indicated," said Tony Plath, a finance professor at the University of North Carolina at Charlotte. "It's a huge number, and the way they're disclosing it erodes the bank's credibility. Why are we waiting until 2011 to do an impairment charge for two years ago?"
The restatement, covering the eight quarters of 2009 and 2010, was made in reports filed with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., Bank of America said.
The lender had previously tested goodwill for entire business segments rather than subsidiaries, Stickler said. The company identified the charge to its credit-card unit last year after "we changed our processes and looked more closely at legal entities underlying the businesses," he said.
Goodwill is an intangible asset on a company's balance sheet; it equals the premium paid over market value for assets in an acquisition. Moynihan's predecessor, Kenneth D. Lewis, spent $35 billion for MBNA Corp. in 2006; it was then the largest U.S. card issuer.
They're trying to reevaluate their businesses in light of changing regulations," said Jonathan Finger, whose family-owned investment company, Finger Interests Ltd., owns 1.1 million Bank of America shares. "While it's a noncash charge, it does perhaps signal weaker profitability in the card business," he said, "and that concerns me."
Bank of America said last month that the loss in its cards division, which includes credit and debit units, widened to $6.6 billion in 2010, from $5.3 billion in 2009, on the $10.4 billion writedown last year tied to debit-card regulation. Excluding the charge, the business would have reported profit of $3.8 billion as credit-card repayment rates improved, the company said.
Investors, including Finger, who led a proxy fight that helped drive Lewis into retirement at the end of 2009, have said that the former CEO overpaid while seeking to expand Bank of America's operations.
Lewis agreed to pay $29 a share for Merrill Lynch & Co. the weekend before Lehman Brothers Holdings Inc. collapsed in 2008. The $50 billion deal was a "crazy price," billionaire investor Warren Buffett told the Financial Crisis Inquiry Commission, according to remarks released this month.
Bank of America bought Countrywide Financial of Calabasas, Calif., in 2008 in a stock swap originally valued at $4 billion. The company announced in January it would write down those operations by about $2 billion.
