Fed tells Bank of America to rein in dividend plan

The Federal Reserve objected to Bank of America Corp's plans to boost the dividend and told the bank to revise its proposal, sending its shares down 2.7 percent in morning trading. BofA had hoped to be in a second wave of banks raising dividends in the second half of this year. Unlike some of its major rivals, BofA is still struggling to be consistently profitable and, by some measures, has less capital than many of its competitors.
The largest US bank by assets said it intends to submit a revised proposal to the Fed and still hopes to increase its dividend in the second half of the year. The news, disclosed by BofA in a regulatory filing on Wednesday, highlights the split between the largest US banks. While some are aggressively boosting dividends, others are still recovering from the financial crisis. "This is a definite black mark for Bank of America and (Chief Executive) Brian Moynihan," said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel Inc. "There's still some weakness in the banks," he said.
The Fed had no immediate comment. On Friday, the Fed approved dividend increases for a group of banks after conducting a second round of stress tests on the 19 largest US banks. Banks slashed their dividends during the financial crisis, seeking to conserve cash. BofA cut its quarterly payout twice in 2008, from 64 cents per share down to 1 cent.
Analysts said BofA's capital position, and fears that it may have to repurchase billions in mortgages, are forcing a cautious regulatory approach. BofA reported a net loss of $2.2 billion for 2010, despite showing improvements in problem loans and loan losses. It posted losses in the third and fourth quarters and has projected lower revenue due to new industry regulations.
In the 2010 fourth quarter, it recorded a charge of $4.1 billion related to the settlement of mortgage repurchases with government-owned mortgage finance companies Fannie Mae and Freddie Mac. The charge was paired with a $2 billion writedown in the value of its home loans business. That followed a $10 billion third-quarter writedown in the value of its card business after new regulations curbed certain kinds of fees charged to customers.
BofA has projected it could repurchase as much as $10 billion in mortgages from private investors over time, though some outside estimates suggest the total could be much higher. In January, the bank agreed to pay Fannie Mae and Freddie Mac $2.8 billion to settle mortgage repurchase claims. The two companies received about 40 cents on the dollar for $6.8 billion in original repurchase claims, analysts said at the time. Moynihan said at the company's investor day in March that increasing the dividend - and returning excess capital to shareholders - was a top priority.