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Bank of America Dividend Request Is Looking Good (BAC)

The Fed will probably approve the bank's dividend hike and share buyback, both of which BAC stock really needs


Bank of America (BAC) surged on heavy volume today after the bank submitted a new capital plan to the Federal Reserve after fixing an accounting blunder that arrested its dividend and repurchase plans.

BAC stock Bank of AmericaThe Fed green-lighted a dividend hike and BAC stock buybacks before BofA made a $4 billion error in its accounting. The blunder led Bank of America to suspend its capital plans last month, weighing on BAC stock.

But now that BofA has straightened out its books, it should be able to get on with returning more cash to restive shareholders.

Bank of America originally planned to raise its dividend to 5 cents a share from 1 cent, and buy back $4 billion in BAC stock. It’s asking for less now, though the bank didn’t specify any numbers.

Still, that’s a fair catalyst for Monday’s action, but investors better hope that accounting error was the only one. After all, the Fed torpedoed Citigroup’s (C) capital plan when the bank failed its stress test.

The Fed doesn’t reveal why a bank passes or fails — and the BAC capital plan looks safe — but, hey, you never know.

True, the accounting error barely changed capital ratios at BAC, so it should sail through the Fed. On the other hand, the accounting problems could lead the Fed to look for other issues, and that’s not exactly ideal.

Interestingly, the error was on BAC’s books for years. Bank of America miscalculated its capital ratios by $4 billion because of the way it accounted for its 2007 acquisition of Merrill Lynch. Only a change in the wording on one of the Fed’s forms led to the mistake being uncovered, according to reports.

BAC Stock: Waiting for Approval

In any case, the Fed has up to 75 days to review the BAC capital plan. So even if it’s good news, there’s no telling when it will land. As BAC said in the related regulatory filing:

“There can be no assurance as to the timing or outcome of the Federal Reserve’s review of the resubmitted 2014 CCAR items, including the requested capital actions contained therein.”

BAC stock sure could use the boost. Bank of America shares were having a great year before the bank disclosed the mistake. BAC stock was up as much as 12% for the year-to-date back in March. Cut to today, and it’s off more than 2%.

The market is betting that BofA will get the green light, and it’s probably right. Though a thumbs-down would result in a punishing blow to shares.

Either way, anyone holding BAC stock will have to wait before they see a higher dividend.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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