Bank of America Corp., the second-largest U.S. bank, restated earnings for the last four years after improperly accounting for derivatives.
The restatement, which resulted in a net gain of $345 million, cut net income for each of the last three years and increased earnings for 2002, the Charlotte, N.C.-based bank said. The profit increase was less than 1% of the $51 billion the bank earned during the period.
Bank of America joins companies such as Fannie Mae, CIT Group Inc. and General Electric Co.'s finance arm in acknowledging transactions that didn't comply with regulations governing derivatives, financial instruments whose value is based on other securities or indexes.
"This event highlights, once again, the difficulty in determining earnings for derivative transactions," Punk, Ziegel & Co. analyst Richard X. Bove wrote in a note to clients.
Bank of America said the derivatives were used to hedge against movements in interest rates and currencies. Its restatement increased profit by $707 million for years before 2002, and didn't affect per-share earnings over that period.
The bank's profit in 2002 rose 10 cents a share, or $304 million. It fell 2 cents, or $49 million, in 2003, 5 cents in 2004 and 10 cents in 2005. Shareholders' equity rose $308 million, or less than 1%.
The bank also said it fixed "weaknesses in internal controls" related to the mistakes.
The accounting rule the bank violated is known as Statement of Financial Accounting Standards 133. The Financial Accounting Standards Board last month proposed guidelines giving banks greater flexibility in how they deal with hedges, said James Vogel of FTN Financial.
Bank of America's shares gained 53 cents to $45.08.