Costs of new regulation emerge in bank earnings

* BofA expects debit card revenues to drop by $2.3 bln

* Citi projects card fees to drop up to $600 mln

* Other costs, revenue losses in reform unknown

By Joe Rauch

CHARLOTTE, N.C., July 16 (Reuters) - Bank of America Corp (BAC.N) said a new law limiting processing fees could cost it some $2.3 billion in annual revenue starting next July, signaling that financial reform could cost U.S. banks billions of dollars.

The news helped push down bank stocks on Friday.

Other laws will also weigh on revenue and trigger big writedowns for the bank, Bank of America Chief Executive Brian Moynihan told investors on a conference call on Friday.

Citigroup's executives said on Friday that the bank stood to lose hundreds of millions of dollars of annual revenue from laws including the CARD Act.

The comments were the most comprehensive effort that industry executives have made so far to quantify the impact of new laws on the financial sector.

A law limiting debit card processing fees, known as the Durbin amendment to the financial reform bill passed on Thursday, will have the biggest impact on Bank of America, cutting its annual debit processing revenue of some $2.9 billon by $1.8 billion to $2.3 billion, the company said in a slide presentation to analysts.

The level was higher than many had expected.

"The decision to present the impact of the Durbin card amendment in its unvarnished form -- without the impact of any possible mitigating actions -- has obviously shocked the markets," said Nancy Bush, a bank analyst with NAB Research.

The KBW Bank Index, a leading sector index, declined 4.57 percent.

Shares of Bank of America slipped 7.99 percent to $14.16 and Citigroup fell 3.85 percent to $4 in Friday trading after earnings were announced.

DEBIT AND CARD

The upcoming regulatory changes were most easily projected in banks' credit card and debit card businesses.

Bank of America, the largest U.S. consumer bank, appears to be particularly affected.

Aside from the Charlotte, North Carolina-based Bank of America's billions in lost debit fees, the Durbin amendment would also spur a $7 billion to $10 billion writedown of its global card services unit's $22 billion in goodwill next quarter, the company said on Friday.

Also, the CARD Act, which limits credit card fees, is projected to reduce revenues by $1 billion after taxes in 2010, and overdraft policy changes are expected to reduce service charge fees by $500 million per quarter.

At Citigroup, the New York-based bank expects the Card Act to cost it about $400 million to $600 million in net pre-tax revenues during the full year of 2010, Citigroup Chief Financial Officer John Gerspach said.

Costs are less certain in other areas of the reform bill sponsored by U.S. Rep. Barney Frank and U.S. Sen. Christopher Dodd and passed on Thursday.

"There are a lot of details that we still have to see and the ultimate impact won't be clear until we know some of these," said Vikram Pandit, Citigroup's chief executive, during the company's call with analysts.

U.S. President Barack Obama is expected to sign the bill next week. (Reporting by Joe Rauch. Additional reporting by Elinor Comlay and Maria Aspan in New York. Editing by Robert MacMillan)