This Is Why The $1.6 Billion MBIA Settlement Will Have Zero Impact On Bank Of America's Q2 Earnings

Tyler Durden's picture


Moments ago, Bank of America and MBIA both formally announced the earlier leaked settlement that sees the bank pay the monoline a long-overdue $1.6 billion in cash plus the issuance of MBIA warrants to buy 9.94 million shares, or 4.9%, of MBI stock at an exercise prices of $9.59/share, which may be exercised at any time prior to May 2018. It is perhaps worth point out that the settlement took place with nearly half of the second quarter already in the books. In addition, BAC will also provide a $500MM credit facility to MBIA. End result: a $1.6 billion pretax charge for Bank of America. And yet, none of this settlement will impact any Bank of America Q2 numbers. Why? The press release explains.

Bank of America will record $1.6 billion in additional pretax charges in the first quarter of 2013, of which $1.3 billion is related to the settlement and the remainder is related to other monolines. The after-tax effect of the additional charges will reduce the company's first-quarter 2013 net income to $1.5 billion, or $0.10 per diluted common share, from the $2.6 billion, or $0.20 per diluted common share reported on April 17, 2013

And the punchline:

As the settlement occurred prior to filing the company's Quarterly Report on Form 10-Q for the period ended March 31, 2013, generally accepted accounting principles require Bank of America to apply the additional charges to the financial results for the quarter ended March 31, 2013.

In other words, had the settlement come a week from today, when BAC's 10-Q would have been filed, the impact would have driven the firm's Q2 earnings lower by about 50%, or have had a $1.1 billion net income impact to the second quarter.

Instead, what just happened, is that the firm will cram the retroactive adverse impact from the settlement into a quarter in which none of what just transpired had even been contemplated. But because the algos will not care one bit about Q1 earnings when Q2 results are announced some time in July, and in fact BAC will be able to show an even higher jump (!) to whatever meaningless number it reports, it will be ordinary course of business for the bank as if today's had never happened.

In accordance with GAAP of course.

Naturally, in a country in which "promises" are now part of GDP, this kind of "Delorian at 88 MPH" back to the future-type of adjustment to financial statements is not only allowed but perfectly expected.

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Mon, 05/06/2013 - 16:00 | 3535220 quasimodo
quasimodo's picture

And this is suprising why?

Mon, 05/06/2013 - 16:03 | 3535234 Groundhog Day
Groundhog Day's picture

Which money manager is in his/her right mind would own any bank stocks

Mon, 05/06/2013 - 16:28 | 3535309 NotApplicable
NotApplicable's picture

Only ones that were formerly known as "depositors."

Mon, 05/06/2013 - 16:32 | 3535320 kaiserhoff
kaiserhoff's picture

And MBIA goes on pretending it isn't bankrupt, so dozens of failed financial institutions can go on pretending their non-performing loans have insurance.  Meanwhile, the millions of borrowers who paid for mortgage insurance...,   got the shaft.

If there isn't a Hell, we should invent one.


Mon, 05/06/2013 - 17:49 | 3535574 ghengis86
ghengis86's picture

I still have yet to hear a reason why all those PMI loans didn't payout when they should have. Aside from the AIG blow up. And why they continue to 'sell' PMI. Guess just another ass raping in the good ole USSA

Mon, 05/06/2013 - 16:00 | 3535222 Bay of Pigs
Bay of Pigs's picture

LOL....good grief. What next? Flying pigs? Bearded lady?

Mon, 05/06/2013 - 16:01 | 3535223 Cognitive Dissonance
Cognitive Dissonance's picture

Doesn't matter. The algos have control of your stock market.

So sit back and relax as we cross over into........The Twilight Zone.

Mon, 05/06/2013 - 16:14 | 3535269 prains
prains's picture

The real question is will this effect their ability to launder money out of Syria as it burns or any other criminal enterprise at it looks to cash out to Boca.

Mon, 05/06/2013 - 16:55 | 3535398 Goldilocks
Goldilocks's picture

Golden Earring - Twilight Zone (HQ) (7:49)

Mon, 05/06/2013 - 16:05 | 3535238 Fuku Ben
Fuku Ben's picture

GAAP? Generally Accepted Anal Probing?

Mon, 05/06/2013 - 16:09 | 3535252 Shizzmoney
Shizzmoney's picture

The TBTF banks in the 1st mortgage settlement paid out $2.6-$3 billion in settlement payments.

Last quarter, they collectively took home $20 billion dollars.


Mon, 05/06/2013 - 16:17 | 3535279 prains
prains's picture

gotta pay the Vig, no if ands about it, vig makes the spice flow

Mon, 05/06/2013 - 16:22 | 3535294 Fix-ItSilly
Fix-ItSilly's picture

This is fraud on the current shareholders - insider trading as well.

Mon, 05/06/2013 - 16:22 | 3535295 Fix-ItSilly
Fix-ItSilly's picture

This is fraud on the current shareholders - insider trading as well.

Mon, 05/06/2013 - 16:25 | 3535305 prains
prains's picture

definitely worth repeating

Mon, 05/06/2013 - 16:31 | 3535315 Ban KKiller
Ban KKiller's picture

In looking forward I like to look backwards if it suits me.  GAAP indeed!


The past is dead. Long live the rosy future! UNLESS I need to look back a the rosy past. 

Mon, 05/06/2013 - 16:38 | 3535332 Rainman
Rainman's picture

They might as well go for it....nobody trusts this POS incompetently managed bank anyway.

Mon, 05/06/2013 - 17:57 | 3535595 geotrader
geotrader's picture

missed it by a week???  that's pretty darn lucky!



Mon, 05/06/2013 - 19:55 | 3535913 Ajax4Hire
Ajax4Hire's picture

This is just the kind of legerdemain that makes America Geat!

Booking today's loss on last quarter.  I am almost without words, wow.

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