6 Banks That Took Goodwill Impairments in 2020
The sudden and sharp drop in global markets forced a number of banks to take goodwill impairments in the first quarter of 2020, a potential sign of tougher times to come.
Goodwill impairments are a slightly complicated accounting charge that shows up on an earnings report. Goodwill is the premium a company pays over the fair value of an acquired asset or liability. Most banks come into goodwill when they acquire another bank or company. For example, if company A purchases company B for $100 million, but the book value of company B is $50 million, then goodwill equals $50 million (purchase price minus book value). An impairment is when the asset's value deteriorates and dips below the book value.
Goodwill is an intangible asset that essentially puts a price on something that is hard to value. For instance, company A might have purchased company B for more than its fair value because company B has a really loyal customer base or an all-star management team, items that can be hard to price. These write-downs, which are taken as a non-interest expense, do not affect liquidity or regulatory ratios but can hurt earnings and hamper a company's ability to pay out dividends.
Source Fool.com
