Magazine article American Banker

Hedge Adjustment Aids M&I's 3Q

Magazine article American Banker

Hedge Adjustment Aids M&I's 3Q

Article excerpt

Marshall & Ilsley Corp. said Monday that an adjustment for hedge accounting benefited its third-quarter results but that the gain came at a price.

The $54.6 billion-asset Milwaukee banking company said the unexpected gain of $28 million, or 11 cents per share, in the third quarter forced it to restate earnings for the first two quarters of the year and will lead to a fourth-quarter charge.

M&I said that after reviewing its accounting for interest rate swaps this year it concluded that some of the swaps no longer qualified as hedges so that it plans to terminate them before yearend. These terminations would prompt a charge of about 3 cents per share in the fourth quarter, it said, and shaved 6 cents per share from first-quarter net income and 5 cents in the second quarter.

Including the benefit, the company earned $238.9 million, or 92 cents a share, in the third quarter. Excluding it, core earnings were $210.9 million, or 81 cents a share, which met analysts' average expectation, according to Thomson Financial. Core net income improved 3.5% from the second quarter and 17.4% from a year earlier.

The company played down the upcoming charge, but investors sold shares. "Just like the increase to earnings in the third quarter, we do not believe this charge reflects our core operating performance," said chief financial officer Greg Smith in a conference call. M&I's stock closed down 2%. Fluctuations in interest rates would not significantly help or hurt M&I after the swaps are terminated, the company said. …

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