Bank of America halts dividend boost, buyback after finding bad data
The Federal Reserve on Monday said it required Bank of America to suspend plans to increase dividends and buy back stock after the firm told regulators it submitted incorrect data about its finances as part of the government’s annual stress tests.
The news was a blow to the nation’s second-largest bank as it was preparing to reward shareholders with their first dividend increase since the financial crisis.
BofA said it would resubmit the data and expected it would have to reduce the size of its dividend increase and buyback plan.
The announcement Monday sent the company’s stock down more than 4% in early trading.
The bank said it “promptly notified” Fed officials after discovering an error in calculating the value of some assets it acquired when it purchased Merrill Lynch in 2009.
BofA was among the 30 large banks that took part in the Fed’s annual stress tests this year to determine if they had enough capital to withstand another severe economic downturn.
Last month, the Fed said BofA passed the stress tests and was given approval to raise its cash dividend to 5 cents a share from 1 cent and to buy back $4 billion in common stock.
Citigroup Inc. and four other banks failed the tests and the Fed rejected their plans for dividends and buybacks.
Fed officials said Monday they forced BofA to suspend its plans after being informed of the incorrect data, which affected the bank’s capital levels.
BofA has 30 days to resubmit its plans for a dividend increase and stock buyback to see if they would receive Fed approval after the revised data are taken into account.
BofA said it has been in “close communication” with Fed officials and “will expeditiously resubmit” its data along with dividend and buyback plans after a third-party review and approval by the company’s board.
The bank narrowly passed the stress test last month after scaling back its dividend and buyback plans.
Even after the revision, which came before the faulty data problem was reported, BofA was just above the 5% minimum ratio of capital to risk-weighted assets under the Fed’s most severe economic downturn scenario.
Jaret Seiberg, a senior policy analyst at financial services firm Guggenheim Partners, said BofA apparently “did everything right once it detected the error.”
“We do not see this as a long-term threat to Bank of America and believe the Federal Reserve will permit the bank to resume the higher dividend and buyback once it resubmits the corrected ... data,” he said.
