Wachovia to Record up to $1 Billion Charge

Wachovia(WB Quote) warned on Wednesday that it expects to take a non-cash charge of as much as $1 billion in the second quarter related to the tax treatment of certain leveraged leasing transactions.

The Charlotte, N.C.-based bank, which has been hobbled by the housing downturn as a result of its 2006 acquisition of residential mortgage lender Golden West, said it expects to record an after-tax, non-cash charge of between $800 million and $1 billion this quarter. The charge is related to a ruling by the U.S. Court of Appeals for the Fourth Circuit that disallowed certain tax breaks for BB&T(BBT Quote) on similar leasing transactions.

Wachovia, which earlier this month said it was raising $7 billion after swinging to a first-quarter loss, said it entered into its transactions over a four-year period beginning in 1999. They involved so-called lease-to-service transactions as well as leases of qualified technological equipment, otherwise known as sale-in, lease-out, or "SILO" transactions, in which the bank would buy assets and lease them out again to the sellers in return for a tax benefit. It said it stopped originating SILO transactions in 2003.

On Tuesday, the U.S. Court of Appeals issued an opinion disallowing BB&T to take tax benefits associated with certain lease-in, lease-out, or "LILO" transactions, Wachovia said. While the court's decision involved so-called LILOs and not SILOs, "applicable accounting standards require Wachovia to update the assessment of its SILO transactions in light of the BB&T decision," it said in a release. Wachovia says the BB&T ruling has no impact on the tax treatment of Wachovia's LILO transactions, which was settled with the Internal Revenue Service in 2004.