On Tuesday Bank of America declared a loss of $7.65 billion for the 3rd quarter. They indicated this was due to a charge which was related to the new credit and debit card reform rules that were passed earlier in the year.
The charge was around $10 billion, which they say is also in preparation for the new laws about to be passed regarding debit cards. Bank of America believes this new legislation could totally destroy its debit card revenue. However, the Merchants Payments Coalition stated they feel these reported losses “dramatically overstate reality and represent a feeble attempt to divert attention from its mortgage foreclosure problems.”
The Coalition’s argument is based on the fact that the new swipe rules are not set to be put into place until sometime in the middle of next year. The Coalition represents about 2.7 million US businesses with 50 million employees.
Bank of America is calling that $10.4 billion dollar write down a “goodwill impairment charge.” The bank feels strongly that the new legislation will hit them hard. So, this write down, they say, is in preparation for that Durbin Amendment, which is a part of the Dodd-Frank financial reform bill. The new rules are expected to dramatically decrease the amount of fees banks can collect from merchants when consumers use their debit cards.
However, the Merchants Payments Coalition says the reform will be a good thing. They claim the sizes of hidden swipe fees are incredible and extremely unrealistic. They claim everyone should rejoice when the new law changes and small businesses and consumers will begin saving billions on fees.
Bank of America replied to these statements that they didn’t believe there was any guarantee that the merchants will pass along the swipe savings to their customers. They also point out that the bank foots the security bills that make it possible for merchants to allow the use of debit cards in the first place. In any case, Bank of America is trying to make shifts that will help it fare better when the new legislation is put into place.
If that write off is not considered, the bank shows around $2.8 billion for common shareholders. This number exceeded all analyst expectations and is largely because of the fall in delinquencies and the increase in quality of credit in its portfolio. It is interesting to note that at this time last year the bank had indicated a $2.2 billion dollar loss for common shareholders because of the numerous defaults on loans and credit cards at that time.
Fortunately, Bank of America is making a shift in its strategy moving forward. They are planning to focus on gearing up more business by making use of customer incentives. This new focus is set to replace all the revenue they’ve been generating through penalty fees. Penalty fees are those such as overdraft charges.
There was no mention about when the bank feels the shareholder dividend might be restored. But, they did indicate that expenses related to litigations had increased to $380 million during the 3rd quarter. There were no other details about these litigations.
