Bank of America 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, N.C., lender said Tuesday. The securities, which pay holders 7% to 7.28%, 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 are 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.