Fed Rejects Bank of America’s Dividend Plan

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EDITOR’S NOTE: In a rare display of doing its job the federal reserve has now expressed some doubts about the balance sheet of Bank of America. The plain truth is that the assets are questionable for one or all of several reasons — the assets are fictitious, the assets are valued fictitiously, and the liabilities are enormously higher than what is currently represented.

Whether it is BOA or any of the other mega banks, to the extent their balance sheet relies on mortgages, mortgage bonds, synthetic collateralized debt obligations, credit default swaps or even receivables relating to the the housing market or the the commercial real estate market, they are vastly misstating their condition. The administration is complicit in allowing this farce to continue because of their fear of what would happen if the truth be told. No, chicken little, the sky is not falling nor is there any danger of such a catastrophe. But we’ll have tragic consequences if bankers are left in the status quo — not accountable to anyone and essentially making the rules and laws. The consumer protection entities have been stripped of their leaders. The outlook is bleak.

Decisions are being made in the upper echelons of corporate finance that will have effects on the pocketbooks of ordinary consumers for decades to come. These decisions are being made by senior management of entities that should not be allowed to exist, at least in the their current form, because they are consolidating their power position in the marketplace and deciding on a new infrastructure for fee sharing on who to charge and how much when you access your money to pay a bill or go to an ATM.

Allowing BOA or any of the other handful of banks controlling 70% of the marketplace to sit at that table is absurd. There are 7,000 banks and credit unions whose representatives should be making the decisions in the marketplace and picking up the pieces of the the houses of cards we generally refer to as Wall Street. We will regret this moment in history when contrary to the lesson of the past, we adopted perceptions and policies that added strength to the already vast unwieldy, unregulated and soon unstoppable oligarchy of banks that control our nation’s future.

Jin Lee/Bloomberg News

12:59 p.m. | Updated

Bank of America revealed on Wednesday that the Federal Reserve had rejected the bank’s plan to increase its dividend in the second half of 2011, even as it agency has permitted dividend increases at several other big banks.

Regulators raised objections as part of the second round of bank stress tests, the results of which came out on Friday. Bank of America, the nation’s largest bank holding company, says it will take a second stab at persuading the Fed to ease its grip on the firm.

The bank said it had originally submitted its dividend intentions to the Fed in January. The company outlined a proposal to maintain its current payout — a token penny a share — for the first two quarters of the year, and then institute a “modest increase” later this year, according to a regulatory filing on Wednesday.

But the Fed scuttled Bank of America’s plans on Friday. Analysts say the Fed’s concerns likely centered on Bank of America’s mortgage business, which is plagued by uncertainty as investors want the bank to repurchase billions of dollars in soured mortgage securities.

“Nobody can really calculate” the risk Bank of America faces on the mortgage claims, said Chris Kotowski, a bank analyst with Oppenheimer, adding that it is “uncharted territory.”

It also remains unclear exactly how Bank of America will tweak its proposal, but bank officials still have their sights set on a slight dividend increase.

“The corporation will continue to work with the Federal Reserve and intends to seek permission for a modest increase in its common dividend for the second half of 2011, through the submission of a revised comprehensive capital plan to the Federal Reserve,” the bank said in the filing.

Shares of Bank of America were down 36 cents, or 2.59 percent, at $13.52 on Wednesday morning.

Bank of America said it planned to rework its dividend proposal in the coming months, most likely by the end of June. The bank is said to be in regular conversations with the Fed, in hopes of hammering out a compromise.

Analysts originally expected the bank to raise its quarterly dividend by 5 cents to 8 cents — roughly 20 percent of its anticipated earnings for the remainder of 2011. That would be in line with other bank payout plans, which regulators are aiming to cap at 30 percent of earnings.

The banking industry lowered – or in the case of Citigroup, halted — their payouts to investors at the height of the financial crisis.

After the recent stress test scores came out, other big banks moved swiftly to lay out plans to raise their dividends and buy back stock — all with the blessing of the Fed.

Several big banks quickly announced proposals to reward shareholders on the heels of the Fed’s announcement. JPMorgan said it would buy back stock worth $15 billion and raise its dividend in the second quarter to 25 cents a share, up from 5 cents. Once Goldman Sachs got the all-clear from the Fed, the bank moved to payback the $5 billion it received from Warren E. Buffett at the peak of the crisis.

Even the beleaguered Citigroup made a symbolic gesture, saying on Monday that it would start paying a penny a share to investors. Most analysts had expected that Citi would not increase its dividend until 2012.

But Bank of America remained silent on the Fed’s ruling until Wednesday. Many analysts had speculated that the bank’s dividend would rise in the second half of the year — and that still could happen if the Fed approves the bank’s revised plan.

The bank in recent months has proclaimed that it has shored up its balance sheet in the wake of the crisis. Bank of America, in the regulatory filing on Wednesday, said its Tier 1 capital had increased to 8.6 percent at the end of 2010, up from 7.1 percent at the end of 2009.

Bank of America “is financially stable enough to pay a dividend, but clearly you can’t put them on the same footing as JPMorgan or Goldman Sachs,” said Mr. Kotowski, of Oppenheimer

The bank’s capital levels, although relatively strong, lag behind some competitors, according to Jefferson Harralson, an analyst at Keefe, Bruyette & Woods.

“They’re just behind,” Mr. Harralson said. “It makes sense to be a little more careful.”

The claims over Bank of America’s mortgage-backed securities also loom large.

The bank paid more than $2.5 billion last year to buy back troubled mortgages sold to Fannie Mae and Freddie Mac, the government-controlled mortgage finance firms. Private investors are also demanding the bank repurchase mortgage securities, saying the underlying loans did not conform to underwriting standards. Many of the mortgages were originated by the subprime lender Countrywide Financial, which Bank of America acquired in 2008.

Bank of America lost $2.24 billion in 2010, largely because of expenses stemming from its takeover of Countrywide.

Although the bank’s shares dropped on Wednesday, some investors expressed support.

The Fed’s decision “doesn’t dissuade us from continuing to build positions in BofA,” said Marshall Front, chairman of Front Barnett Associates, a Chicago-based investment manager.

“It is a setback in the progress they’ve made,” Mr. Front said. But “I don’t think this changes their longer-term plans.”

5 Responses

  1. This just floors me:

    “It also remains unclear exactly how Bank of America will tweak its proposal [I’m sure BofA will come up with *something*], but bank officials still have their sights set on a slight dividend increase.

    “The corporation will continue to work with the Federal Reserve and intends to seek permission for a modest increase in its common dividend for the second half of 2011, through the submission of a revised comprehensive capital plan to the Federal Reserve,” the bank said in the filing.”

    Revision…tweaks…do overs? What is it going to take to make someone with authority say enough is enough! What is so hard to understand that BofA goes as far as it thinks possible, to see if anyone objects, then if the first behavior doesn’t pass the smell test, it will “revise” or “tweak!”

    Why not? So far they ADMIT fraud on the Court, forgery, falsified documents, perjury, and countless other criminal offenses and not even a slap on the wrist is considered. All Main Street gets is a public statement from masterful politicians or other leaders snowing Americans* just enough,* so they can say, “Well, we told you so after our investigation.”

    Our future is *very* scary.

    The criminals need to be prosecuted NOW.

  2. We all need to send this information to all of our AGs in our states. We need to send this information to our state senators and assemblymen. Those 7000 smaller banks will pay more taxes to our states coffers and we will be treated more humanely if BOA , Wells Fargo, Citibank(Who pay no taxes) go belly up.
    Stan Putra
    Racine WI

  3. […] Source: Livinglies’s Weblog […]

  4. I hope this is the beginning of the end for BofA. I recently had a conversation with a woman who has had a long career in financial services. She told me that investors are not buying financial services stocks, because they are too risky, including BofA.

  5. we should all remember that up until last week,BOA represented that,at most, possible put back mortgages would not exceed 12bn +/- dollars. Then last week they unveiled their “good bank/bad bank” restructuring plan,which would have the “bad bank” holding over 700bn dollars in 60day late or defaulted loans. This doesn’t square up. Also,when looking for BOA info,remember there is alot of info under Banc of America,not Bank of America,to throw you off.

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