BofA Sees $600 Million Writedown Tied to Merrill Securities

  • Fourth-quarter pretax charge stems from 2009 acquisition
  • Trust preferred securities paid at least 7% interest

Bank of America Corp., the second-biggest U.S. lender, will post a $600 million pretax writedown in the fourth quarter as it redeems $2 billion of trust preferred securities tied to its 2009 acquisition of Merrill Lynch.

“The company expects to realize cash savings from lower funding costs as a result of the redemption,” the Charlotte, North Carolina-based lender said Tuesday in a statement. The securities, which pay holders 7 percent to 7.28 percent, will no longer count toward the bank’s regulatory capital starting next year, the bank said.

Trust preferred securities are equity instruments that pay interest like bonds. Banks favored issuing them during the financial crisis because they’re treated like equity, and not debt, for regulatory purposes. Banks may start redeeming these securities early because the Dodd-Frank Act phased out their treatment as regulatory capital.

The fourth-quarter charge represents a lump-sum writedown on the securities as the bank accelerates their redemption.

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