Fed rejects Bank of America’s plan to raise dividend
|Brian Moynihan’s tenure has been marked by a sharp hike in lawsuits, credit card losses, and lower checking account income.|
By Pallavi Gogoi and Samantha BomkampAssociated Press / March 24, 2011
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NEW YORK — It was one more blow for Bank of America: The Federal Reserve didn’t allow nation’s largest bank to increase its dividends.
The decision by the Fed makes Bank of America Corp. the only one of the four largest US banks that wasn’t able to raise its dividend, something shareholders have been clamoring for.
The Fed’s decision, which Bank of America disclosed in a regulatory filing yesterday, also raised questions over whether the bank is strong enough to withstand another economic downturn.
For chief executive Brian Moynihan, the Fed’s rejection was another setback in his 14-month tenure, which has been marked by an increase in lawsuits, mounting losses from credit cards, and decreased income from checking accounts. As recently as March 8, Moynihan promised shareholders they would likely see a dividend increase in the second half of the year. “We have the capital. We have the brand, and now we’ve been building the balance sheet,’’ Moynihan, of Wellesley, Mass., said.
But the Fed didn’t agree. Bank of America, along with the nation’s 19 largest banks, was subject to a stress test in the first quarter. The Fed tested the banks’ balance sheets and other measures to see if they were strong enough to stand up to another economic downturn. Only banks that passed the test were allowed to increase dividends.
The Fed has now asked the Charlotte, N.C., bank to submit a revised plan, and it is unclear if it will be allowed to increase its dividend in the second half of the year.
“This is a reality check for Bank of America,’’ said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $3.2 billion in assets.
Bank of America shares fell 1.66 percent to $13.65. Spokesman Scott Silvestri said in a statement the bank would resubmit its plan in the summer for a modest dividend increase in the second half of this year.
Moynihan will have to convince investors and the Fed that the bank is strong enough to weather another recession. At a time when the bank’s profits and revenue are shrinking because of new regulations, it’s not going to be an easy task.
Last week, the Fed cleared the way for several banks like New York’s JPMorgan Chase & Co. and Boston’s State Street Corp. to increase their dividends.
Last year, in Moynihan’s first year at the helm, its credit card unit took a $10.4 billion write-down due to new regulations and its home loan business struggled with fallout from the implosion of the housing bubble.
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