BB&T Corp. (BBT:US) is evaluating how a court setback for Bank of New York Mellon Corp. (BK:US) on foreign-tax credits will affect BB&T’s chances for getting a refund in a separate $892 million U.S. tax dispute.
“The BNY decision is a long opinion that will take some time to digest,” said David White, a spokesman for BB&T, North Carolina’s second-largest bank by assets. “We continue to have confidence in BB&T’s position because key issues raised in that case are different from the issues BB&T intends to raise.”
BB&T wants to recover payments made after the Internal Revenue Service objected to the bank’s use of foreign tax credits and other deductions from 2002 to 2007, the company said in its latest quarterly regulatory filing. The lender, based in Winston-Salem, initially complied with the 2010 IRS demand for $892 million in taxes, penalties and interest.
The bank then sought to recover money in court and booked some of the anticipated proceeds as a receivable, according to the November filing, meaning the bank expects to recoup the money. The firm didn’t specify the size of the receivable and also set aside an unspecified reserve, according to the document.
The impact of an adverse outcome to the case could be “significant,” John Pancari, an analyst for Evercore Partners Inc., said today in a note to clients. If BB&T loses, the need to reserve for the full $892 million could reduce tangible book value by as much as $1.27 a share, he said in the note.
BNY Mellon said yesterday the New York-based company will take a charge of about $850 million after it was prohibited by the U.S. Tax Court from claiming its foreign-tax credits. That case focused on the firm’s use of financial dealings known as STARS transaction.
“Management has consulted with outside counsel and continues to believe that BB&T’s treatment of this transaction was in compliance with applicable laws and regulations,” BB&T wrote in the November filing.
The IRS’s demand for $892 million represents about 44 percent of BB&T’s reported annual profit of $2.03 billion in 2012. The stock gained 4.4 percent in the past 12 months through yesterday, trailing the 24 percent gain the 24-company KBW Bank Stock Index.
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