BUSINESS

Bank of America files corrected capital plan with Fed; investors cheer

Bank of America Corp. told stockholders that it has corrected errors in an annual stress test overseen by the Federal Reserve, saying the changes had almost no effect on its financial strength rating.

The news on Tuesday sent Bank of America shares higher by 46 cents to $15.18, a gain of more than 3%, in afternoon trading in New York.

The mistake, disclosed last month, caused the bank to overstate its capital cushion against losses by $4 billion.

As a result, Bank of America was forced to postpone plans to raise dividend payouts to stockholders and repurchase shares for the first time since the financial crisis, sending its stock into a tailspin.

Charlotte, N.C.-based Bank of America said it has resubmitted material demonstrating that it has enough capital to withstand a financial crash. The Fed has up to 75 days to review the revised material. 

Bank of America is the second-largest U.S. bank as measured by assets. It has struggled through more than $50 billion in losses stemming from its acquisition of high-risk lender Countrywide Financial Corp. in Calabasas as the financial crisis took hold. 

It and Citigroup Inc., the third-largest bank, were the only big financial firms to require two rounds of taxpayer bailout funds to ride out the near-meltdown of the global economy in 2008.

When the Fed stress-tested 30 large banks early this year, five of them, including Citigroup, failed the tests and had their plans for dividends and buybacks rejected.

Bank of America, however, passed the tests and was given approval to raise its quarterly cash dividend to 5 cents a share from 1 cent and to buy back $4 billion in common stock.

The discovery of the bank's accounting mistakes put on hold those shareholder rewards programs. Bank of America has said it would reduce the programs in its revised plan, but hasn’t specified by how much.

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