Bank of America in Charlotte, N.C., plans to record a roughly $1.6 billion charge in the fourth quarter tied to the shift away from the London Interbank Offered Rate (Libor) benchmark.
The $3.2 trillion-asset company disclosed in a regulatory filing that it expects the $1.6 billion noncash charge to be “recognized back” into interest income in subsequent periods through 2026.
As part of a shift from Libor, alternatives such as the Bloomberg Short-Term Bank Yield Index were created. That index will be permanently shut down on Nov. 15, prompting BofA “to ‘de-designate’ certain interest-rate swaps used in cash flow hedges” as of November 2023.
The bank said it was required to “de-designate certain interest rate swaps used in cash flow hedges of certain BSBY-indexed loans” as of Nov. 15 and “reclassify into earnings any amounts recognized in the accumulated other comprehensive income category of shareholders’ equity that relate to forecasted cash flows that are now no longer expected to occur.”
The charge reduced the company’s common equity Tier 1 ratio by 8 basis points at the end of 2023.