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Fed rejects BofA's plan to raise dividend

March 23, 2011|By Rick Rothacker

Reporting from Charlotte, N.C. — Bank of America Corp. revealed Wednesday that the Federal Reserve rejected its plan for a modest dividend increase in the second half of the year, even as other large banks are raising dividends in the first half of the year.

The bank, based in Charlotte, said in a securities filing that it would continue to work with the Fed and planned to submit a revised capital plan that would again call for a modest increase in the quarterly dividend, now at 1 cent a share.

A spokesman said BofA would resubmit its proposal in "the coming months." In a news release Friday, the Fed said banks could resubmit capital plans each quarter.

The disclosure follows the completion of the Fed's stress tests of the 19 largest U.S. banks. Banks that received Fed approval began announcing on Friday dividend increases, share buybacks and plans to pay back government bailout dollars.

"This is disappointing and a step back for [Bank of America] in terms of trying to rebuild credibility and confidence," Andrew Marquardt, an analyst with Evercore Partners, said in a report Wednesday.

Marquardt said it was the first example of the Fed's rejecting a plan. The news highlights how the bank's capital levels are lower than those of its peers and that its ability to generate new capital may be weaker than others', he said. The six largest banks faced additional stress tests related to trading and private equity investing, which may have led to the rejection, he added.

Banks need capital to absorb unexpected losses and to make loans needed for the economy.

The disclosure more clearly separates the nation's biggest bank from other institutions such as Wells Fargo & Co., which said Friday that it was raising its quarterly dividend rate to 12 cents a share from 5 cents. Bank of America, in particular, continues to struggle with mortgage-related losses largely tied to its 2008 purchase of Countrywide Financial Corp.

The Fed's rejection also associates BofA more closely with long-troubled Citigroup Inc., which announced plans this week to reinstate a 1-cent-a-share dividend.

Rothacker writes for the Charlotte Observer/ McClatchy.

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