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Troubled Debt, Mergers Lurk as Top Loan Loss Revamp Concerns

Dec. 29, 2020, 9:45 AM

When Huntington Bancshares Inc. announced this month it would merge with TCF Financial Corp. to become a top 10 regional bank, the bankers explained to analysts that they’d have to “double count” the losses on the loans they acquired in the deal.

A quirk of a major new accounting rule forces banks to set aside more reserves than in the past to cover future losses, even on healthy loans they acquire in a sale or merger. This dings their earnings and value to shareholders. Banks describe it as a “double count.”

This part of the current expected credit losses (CECL) ...