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Wachovia to Record up to $1 Billion Charge

The Charlotte, N.C.-based bank said a U.S. Court of Appeals ruling impacted accounting treatment of certain leveraged leasing transactions.


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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


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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.

Wachovia expects to record the charge as income over the remaining terms of the affected leases, generally 35 to 40 years, it said.

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The company said it would provide additional information regarding the charge when it files its quarterly report with the

Securities and Exchange Commission

. A Wachovia spokeswoman said the bank had $5.05 billion of SILOs on its balance sheet but declined to elaborate.

Wachovia shares were rising slightly on Wednesday. Shares of other banks including

Bank of America

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, BB&T,


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Fifth Third

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National City



Washington Mutual

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were mixed.