BAC PREANNOUNCES Q3 CHARGES
Bank of America Corp pre announced several items that will reduce reported Q3 2012 GAAP earnings per share (eps): 1) a settlement of a class action lawsuit by Bank of America Corp security holders at the time of the acquisition of Merrill Lynch which will result in a payment of $2.43B as part of the settlement (assuming approval of the settlement by Judge Castel in the U. S. District Court for the Southern District of New York);
2) Bank of America Corp expects DVA/FVO effects will reduce reported GAAP revenue by $1.9B in Q3; and 3) reiterated the $800 millioncharge to income tax provision resulting from U.K. corporate tax rate changes. Wells Fargo Analysts believe Bank of America Corp (NYSE:BAC) will perform in line today as the charges are largely noncore in nature.
HIGHER LITIGATION THAN ESTIMATED; U.K. TAX CHARGE UNCHANGED
As a result of the settlement, Bank of America Corp (NYSE:BAC) expects litigation costs in Q3 will total $1.6B vs. prior estimates of $1.0B included in 3Q GAAP EPS estimates of $0.14. The $1.6B anticipated accrual will reduce EPS by about $0.05. The previously noted $0.8B UK tax charge was already included in Wells Fargo’s 3Q estimate.
DVA/FVO CHARGE MATERIALLY HIGHER THAN PRIOR ESTIMATE
Earlier this month, Wells Fargo estimated negative DVA for Bank of America Corp of $0.5B based on QTD credit spread tightening through August 31 but did not include the impact in their estimates at that time. The $1.9B (pretax) estimated DVA impact will reduce GAAP EPS by $0.18.
THE BOTTOM LINE CHARGES POINT TO $0.09 GAAP LOSS, NO CHANGE TO ”CORE EPS” OF $0.29; 2% Tangible Book Value REDUCTION
Relative to Wells Fargo Analysts’ current GAAP estimate, these charges suggest a GAAP loss of about $0.09 for Bank of America Corp in 3Q and reduces their expected Tangible book value/share by slightly less than 2% vs. their prior estimate of $13.21 for Q3 .Despite the meaningful reduction of Bank of America Corp’s expected GAAP EPS in Q3, Wells Fargo consider all these items noncore, and therefore affirm their ”core EPS” estimate for Bank of America Corp of $0.29 for 3Q 2012.
Disclosure: Long Bank of America Corp (NYSE:BAC) Calls