BofA bolsters compliance after $10.7 billion error

CHARLOTTE, North Carolina (Reuters) - Bank of America Corp is beefing up its internal accounting controls after it incorrectly classified as much as $10.7 billion in short-term lending and repurchase deals for mortgage securities as sales, according to a letter filed on Friday with U.S. securities regulators.

The Charlotte, N.C.-based lender said the transactions -- spread over a three-year period -- were immaterial to Bank of America's earnings in a May 13 letter to the U.S. Securities and Exchange Commission, which was publicly filed on Friday.

The error was first disclosed in the bank's first quarter 2010 report, which noted the bank incorrectly accounted for some mortgage-backed securities as sales, rather than repurchase or short-term lending deals.

The first such error occurred on March 31, 2007, totaling $4.5 billion in securities. The largest misclassification was $10.7 billion in securities on September 30, 2008.

"The transactions did not have a material impact on the bank's earnings or balance sheet," said company spokesman Jerry Dubrowski.

If the deals were properly accounted for, Bank of America's Tier 1 capital ratio -- a key metric monitored by bank regulators -- would have declined 0.01 percent on Sept 30, 2008, when the largest such error existed.

Bank of America has since beefed up its internal accounting procedures to prevent the error from recurring and the bank has not found similar errors after an internal review, according to the bank's letter to the SEC.

(Reporting by Joe Rauch, editing by Vicki Allen)