$7.3b third-quarter loss jolts Bank of America

Dubai: Bank of America Corporation (BoFA) reported a net loss of $7.3 billion (Dh26.79 billion), or $0.77 per diluted share, in third-quarter 2010, including a non-cash, non-tax deductible goodwill impairment charge of $10.4 billion.

Excluding this charge, net income was $3.1 billion, or $0.27 per diluted share, compared with a net loss of $1 billion, or $0.26 per diluted share, in the third quarter of 2009.

The goodwill impairment charge is a non-cash, non-tax deductible charge applicable to the Global Card Services segment, the bank said in a statement to Gulf News.

"The goodwill impairment charge does not impact regulatory capital or tangible equity ratios or liquidity, and has no impact on the company's ability to serve its customers and clients around the world," it said.

"The charge results from the limits to be placed on debit interchange fees under the financial reform legislation enacted in July 2010, which will reduce future revenues in the Global Card Services business."

However, J. Edward Ketz, accounting professor at the Pennsylvania State University, wrote in a recent article: "I find it funny that ... companies insist goodwill impairment charges are non-cash. "While technically true, the claim misses a very important point. Resources were distributed ... and these resources were accounted for as an asset. When the utility of the asset is reduced or depleted, then the accountant transfers the amount from assets to expenses. What is done with goodwill is no different from prepaid rent."

As a result of the July 2010 legislation and "other changes in the environment", BoFA is "changing the way its consumer bank does business," it said.

• $3.1b net income in thirdquarter excluding charge
• $1b net loss in third quarter of 2009