BofA Raises Dividend, Drops Buyback as Capital Plan Approved

Aug 06, 2014 10:24 am ET

(Updates with prior dividend attempts in eighth paragraph.)

Aug. 6 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, raised its quarterly dividend to 5 cents a share and dropped plans to buy back stock after the Federal Reserve approved its resubmitted capital plan for 2014.

The dividend will rise from 1 cent, the Charlotte, North Carolina-based company said today in a statement. Plans for the increase were postponed in April after Bank of America said it made an error in its original request to the Fed. The central bank said today it didn’t object to the company’s revised plan.

Chief Executive Officer Brian T. Moynihan, 54, had to suspend the dividend increase and $4 billion of planned share repurchases after the company said it incorrectly adjusted for losses on structured notes issued by Merrill Lynch & Co. The boost to the dividend, which was cut to a token amount during the financial crisis, is the first in seven years.

“Shareholders were pressuring them more for the dividend than the buyback,” Charles Peabody, a Portales Partners LLC analyst in New York, said in a telephone interview. “In order to get a successful situation they decided to forgo the one for the other.”

Bank of America rose 1.9 percent to $15.29 in New York trading at 10:13 a.m., the biggest increase in the 24-company KBW Bank Index.

Adverse Scenario

The firm’s Tier 1 leverage ratio would drop to no lower than 4.1 percent in the Fed’s “severely adverse” scenario after including the lowered capital-return request, the central bank said in a separate announcement. That cleared regulators’ 4 percent required minimum.

Peabody said it was a “shrewd move” to ask only for a higher dividend for now, and sets the company up for the possibility of a buyback next March. Still, he said he expected a $2 billion share repurchase.

Bank of America shareholders have been pressing Moynihan to raise the dividend for most of his tenure, which began at the start of 2010. The CEO told investors in March of 2011 that he could restore part of the quarterly payout, which was 64 cents in 2008.

Bank of America had its 2011 capital proposal rejected as competitors including New York-based JPMorgan Chase & Co. and Wells Fargo & Co., based in San Francisco, increased their payouts. Moynihan’s firm didn’t ask for a dividend increase in 2012 and got a $5 billion share repurchase program approved last year.

The Fed last month extended deadlines until next year for revised capital plans from Citigroup Inc. and the U.S. units of HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Banco Santander SA after objecting to earlier versions.

--With assistance from Hugh Son in New York.