BB&T Buckles Up As BNY Losses STAR’ Case – BK

Boston, MA 02/13/2013 (wallstreetpr) – BB&T Corporation (NYSE:BBT) an American financial holding company is assessing the odds of it is winning a refund in a tax dispute with the Internal Revenue Services. The issue could cost it as much as $892 million. An unfavorable outcome in the foreign tax credit lawsuit against Bank of New York Mellon Corporation (NYSE:BK) Would effect in a separate $892 million U.S. tax dispute.

In its Q4 financial statements the BB&T Corporation (NYSE:BBT) made it clear that it would fight for a fair treatment from Internal Revenue Services and recover the payments it made to the agency over a disputed accounting treatment of foreign tax credits between 2002 to 2007. It had initially agreed to pay the agency $892 million in lieu of taxes, interest and penalties arising from the alleged violation. The cumulative amount was almost 44% of the BB&T Corporation (NYSE: BBT)’s full year earnings of $2.03 billion for F.Y 2012.

Later on the Winston Salem based bank approached a court of law and sought a refund in respect of the expected outlay. It booked an unspecified receivable reserve in its books of an unspecified amount, without putting a figure on it.

Analysts contend that the decision of the court order would significantly impact the financial standing of the bank. In his today’s note to the clients, John Pancari an Evercore Partners Inc. analyst said a victory for IRS means the bank will be forced to book an accounting provision of $892 million which would extinguish the tangible book- value of the company by up to $1.27 per share.

In a separate proceeding , the US IRS sought a court order to banish a decade old accounting treatment called STARS transaction which companies and trust banks use inflate foreign tax credits. Following this the management of the trust bank asserted it had consulted independent consultants who confirmed that the treatment of the STAR transactions was fully compliant with “applicable laws and regulations”, in a filing submitted in November.

Yesterday, the New York based trust bank released a preliminary estimate for losses that could result from an unfavorable outcome, saying it would have to create a $850 million accounting provision if it loses the case. The court decided in favor of the agency, saying the transactions included planned circular cash flows which lacked any residual economic benefits except tax evasion.

The stocks of North Carolina’s 2nd largest bank by assets , BB&T Corporation (NYSE: BBT) has surged by 4.4% in the last twelve months trailing a 24% gain in the KBW Bank Stock Index, which consists of 24 components.

David White, BB&T’s spokesperson says the court decision favoring the IRS over the Bank of New York Mellon Corporation (NYSE:BK)’s foreign-tax credits issue is “a long opinion that will take some time to digest”. However he “key issues raised” in BNY case differ materially from “issues BB&T intends to raise” he told.

The BB&T Corporation (NYSE: BBT) shares were down by 0.36% and currently trading at $30.49. The Bank of New York Mellon Corporation (NYSE:BK) shares were up by 1.79% and currently trading at $28.40

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).