Bank of America canceled a planned share buyback program today, after realizing that it had made a tiny little accounting error—and by "tiny little," we mean "$4 billion." "The market's reaction, with about $10 billion of BofA's market value wiped out, was swift, brutal, and justified," writes David Reilly at the Wall Street Journal, whose write-up begins with the question, "Too big to fail, or just too complex to manage?" The error appears to have spilled out of the bank's acquisition of Merrill Lynch, as the bank improperly excluded certain realized gains and losses.
"You have to sympathize a little with Bank of America here," writes Matt Levine at Bloomberg, "They totally messed this up and should be made fun of," but the rules are nuts, and their wrong approach might almost make more sense. The Fed missed this mistake, too, which probably means that it "did not review Bank of America's capital calculations in any detail. Which is—really weird?" It definitely inspires loads of confidence in the Fed's stress tests, that's for sure! "The lesson here is the usual one. Nobody knows what a bank is, or how big it is, or how much capital it has." Click for Levine's full piece; Reilly's is here.