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  • Bank of America (BAC) could lose a $480M revenue stream (3% of 2011 earnings), says Matthew O'Connor, thanks to expected new rules requiring banks process debit card transactions in the order they occur rather than from largest to smallest. Several big banks have already changed, but BofA - among others - hasn't, and continues to enjoy the easy money.  [View news story]
    Essentially it comes down to overdraft fees. If a bank account has $200 in it, and the bank receives charges in the order $20, $25, and $210 they would presumably charge the first two charges first, bringing the account to $155, and then imposing a single ~$35 overdraft fee when the $210 is drawn.

    Bank of America would hold all three charges, and then process them in order from highest value to lowest value. Now the $210 is drawn first, knocking the account negative immediately and incurring a ~$35 overdraft fee on the first transaction AND two more overdraft fees for the $25 and $20 transactions since the account is already negative. This allows BAC to collect $105 in overdraft fees in the same situation that other banks would only collect $35.

    BAC and many consumers feel this is fair because the person is being heavily penalized for spending money they don't have, while other consumers equate the multiple overdrafts to kicking someone while they're down, especially with the bank deliberately changing the order of charges to maximize the penalty.

    Either way, the moral of the story is "Don't Overdraft".
    Jul 11, 2012. 10:28 AM | 6 Likes Like |Link to Comment
  • Morgan Stanley (MS) +3.4% premarket after it avoids the dreaded 3-notch downgrade from Moody's last night. Just the 2-notch downgrade it received means the bank will face about $3B less (than a 3-notch) in collateral calls from trading partners. From the last 10-Q: "CEO James Gorman has met with the ratings firm more often than usual in the past quarter."  [View news story]
    Quite simply, it's because the downgrades were already priced into the stock. People were expecting a three-notch downgrade, and the stock price already reflected it. Since it was not downgraded quite as far as expected, the stock price faced a correction upwards when people realized the company wasn't doing as poorly as estimated.
    Jun 22, 2012. 01:45 PM | 1 Like Like |Link to Comment