Bank Of America Dividend Hike, Buyback Seen Likely
By JASON MA, INVESTOR'S BUSINESS DAILY Posted
Bank of America (BAC) can afford to return more money to shareholders but chose not to, at least for now, avoiding Citigroup's (C) embarrassment of having payout plans rejected by regulators.
State Street (STT) was the latest bank to join the rush in announcing a dividend boost Wednesday, saying it will raise its quarterly dividend 33% and buy back up to $1.8 billion in stock.
The Federal Reserve's release of the bank stress test results showed that BofA has enough capital to boost its nominal 1-cent dividend or repurchase shares, even during a severe recession.
But having had a payout bump request get rejected last year, BofA played it safe this year, though it now looks poised for a future increase.
In intraday trading, shares rose more than 3%, adding to a 6% jump Tuesday. Citigroup was down 3%, further hurt by an analyst's downgrade. After being the first to announce a dividend hike and new buyback yesterday, JPMorgan Chase (JPM) was little changed. State Street was up 1%, and Wells Fargo (WFC) was down 1%.
BofA has excess capital equivalent to about $1.10 a share, giving it more leeway to seek a dividend boost or repurchase in 2013, estimated Wells Fargo analyst Matt Burnell in a research note.
In fact, BofA's tier 1 common capital ratio, a key measure of a bank's buffer against losses, is higher than JPMorgan's under the Fed's recession scenario and after any planned payouts, though it could also mean any BofA payouts would be more modest.
Citigroup said it will resubmit a capital plan to the Fed, and Bloomberg cited a memo from Citi CEO Vikram Pandit, who vowed to return "meaningful capital."
The Fed's initial rejection of the bank's plan appears to be the first big misstep from Pandit since Chairman Richard Parsons announced earlier this month he would step down, seen as a vote of confidence in Pandit's ability to move the bank further beyond the 2008 crisis.
Citi's tier 1 common capital ratio fell short where the Fed modeled for a recession and bank payouts, but it topped the requirement under Q3 2011 conditions and during a recession without payout plans.