Bank of America to Buy Back Up to $5 Billion in Stock, Boost Dividend -- 2nd Update
June 29 2016 - 05:49PM
Dow Jones News
By Christina Rexrode
Bank of America Corp. got a green light on the Federal Reserve's
stress test, and the bank announced it would return more capital to
shareholders.
The Fed on Wednesday approved Bank of America's capital plan
after determining that the bank could keep lending in a severe
economic downturn. The bank said it would increase its quarterly
dividend to 7.5 cents a share, from 5 cents. It also received
permission to buy back up to $5 billion of its own shares in the
coming year, up from last year when it asked for $4 billion over
five quarters.
The Fed's approval gives breathing room to CEO Brian Moynihan,
who has been under pressure to improve the bank's credibility with
regulators. The bank had fumbled three of the past five exams, a
record worse than other major U.S. banks.
The Fed's approval is also particularly important to the bank
because many investors have been disappointed by its relatively low
dividend and share price. This marks just the second time since the
financial crisis that the bank has increased its dividend.
The bank's increased dividend payout was in line with analysts'
estimates, and the stock rose in after-hours trading. "Over the
last few years, we have significantly strengthened our company and
increased our earnings as we execute a straightforward strategy
focused on responsible growth," Mr. Moynihan said in a
statement.
Last year the Fed told Bank of America that it had concerns
about its ability to assess its own risk, and in 2014 the bank had
to redo its test after discovering an error in the way it
calculated capital. To lead the latest test, Mr. Moynihan tapped
his ally and longtime human-resources chief, Andrea Smith, in a bet
that the bank needed a project manager more than a number
cruncher.
The bank might have also been helped by taking a more
conservative tack on its submission. Generally, the banks are more
optimistic than the Fed is about how they would fare in a severe
recession. But last week, on the first round of stress-test
results, Bank of America estimated that a key capital ratio would
fall lower than the Fed did.
The latest stress-test result assesses how the banks would fare
in a severe recession that included a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The Fed found that at the low point of the hypothetical
recession, Bank of America's common equity Tier 1 ratio -- which
measures high-quality capital as a share of risk-weighted assets --
would be 7.1%, above the 4.5% level the Fed views as a minimum. The
new ratio, unlike the one reported last week by the Fed in a
related test, takes into account the bank's proposed capital
plan.
The bank's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, would be 5.9% in a hypothetical
recession, above the 4% Fed minimum.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
June 29, 2016 17:34 ET (21:34 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Bank of America (NYSE:BAC)
Historical Stock Chart
From Feb 2024 to Mar 2024
Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2023 to Mar 2024