Saturday, July 10, 2010

(BN) Bank of America Tells SEC That $10.7 Billion of Trades Wrongly Classified

Bloomberg News, sent from my iPhone.

Bank of America Says Trades Were Wrongly Classified

July 10 (Bloomberg) -- Bank of America Corp., the largest U.S. bank by assets, said it wrongly classified $10.7 billion of short-term repurchase and lending transactions as sales from 2007 to 2009.

Bank of America said the inaccuracies aren't material, according to a letter released yesterday from the U.S. Securities and Exchange Commission. In the document, the SEC cites an April 14 letter it received from the company.

Addressed to interim Chief Financial Officer Neil Cotty, the SEC's letter asked the bank to disclose whether the transactions were intentionally mislabeled, and to prove that the trades were immaterial. The Charlotte, North Carolina-based bank said in the April letter that it stopped the transactions after the first quarter of 2009, the SEC said.

The SEC sent letters to finance chiefs at about two dozen firms in March asking whether they employed accounting strategies like those at Lehman Brothers Holdings Inc. The bankrupt securities firm was accused of using repurchase agreements called Repo 105s to move assets off its balance sheet to hide leverage.

In a response to queries from the SEC, the bank said it did an "extensive review" of repurchase agreements and similar transactions and didn't find more errors. The mistakes didn't affect credit ratings or management compensation, hide any failure to meet analysts' consensus estimates, mask other trends or put the bank out of compliance with loan and capital requirements, the bank said.

Roll trades

The comment letters to the SEC followed previous bank disclosures that "certain sales of agency mortgage-backed securities should have been recorded as secured borrowings rather than sales," bank spokesman Jerry Dubrowski said. "The transactions did not have a material impact on the company's balance sheet or earnings."

The transactions involved six so-called dollar-roll trades completed during 2007, 2008 and 2009, according to the bank's filing. Bank of America was run by Chief Executive Officer Kenneth D. Lewis at the time.

The bank, now led by CEO Brian T. Moynihan, transferred mortgage-backed securities to a trading partner with the idea of receiving different securities later and classifying the deals as sales, the Wall Street Journal reported yesterday. The securities the bank received were similar to those it got rid of, meaning the transactions can't be considered sales, the newspaper said.

To contact the reporters on this story: Dakin Campbell in San Francisco at David Mildenberg in Charlotte at

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Thank You,

Kenyatta Lovett

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