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BofA to Incur $2.1B Charge in Q3 on Impending JV Termination

Zacks Equity Research

Bank of America BAC will recognize a pre-tax impairment charge of $2.1 billion (to be included in other general operating expenses) in third-quarter 2019. The charges will also result in a reduction inthe company’s common equity tier 1 ratio by 10 basis points.

Notably, these charges will have no impact on BofA’s 2019 capital plan that includes 20% dividend hike and roughly $30.9 billion worth of share repurchase authorization.

Earlier in July, BofA had revealed that its merchant servicing joint venture – Banc of America Merchant Services – with First Data, which is now merged with Fiserv, Inc. FISV, will be terminated at the end of June 2020.This joint venture was formed in 2009.

Subsequently, BofA will likely follow its own merchant services strategy. With the ever-changing payments environment, this effort is expected to further improve the bank’s operating efficiency.

Nonetheless, both the companies will be providing “uninterrupted delivery of products and services” to the joint venture clients at least through June 2023. Also, Fiserv will continue to support BofA’s global payment solutions.

Amid the Federal Reserve’s accommodative policy stance and challenging operating backdrop, BofA is undertaking several measures to manage expenses and support profitability. Management expects operating expenses in 2019 to be slightly lower year over year.

Also, BofA is accelerating its plan, which was announced last year to open financial centers, with an aim to expand retail and small business banking services in new and existing markets. The company is also taking additional efforts to modernize the existing network of branches and ATMs in response to changing customer behavior.

Shares of this Zacks Rank #3 (Hold) company have rallied 11.6% so far this year, outperforming the industry’s rise of 8.1%.

Stocks to Consider

The Zacks Consensus Estimate for Ally Financial ALLY has moved 3.3% upward for 2019 in the past 60 days. Shares of this Zacks Rank #2 (Buy) company have returned 40.2% year to date.

The Zacks Consensus Estimate for Navient Corporation NAVI has been revised 14.5% upward for 2019 in the past 60 days. Its share price has surged 43.5% so far this year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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