By Michael Ide
Market reaction to the dividend increase is muted since most investors expected something before the end of the year.
Bank of America Corp. (NYSE:BAC) was able to increase its dividends for the first time since the financial crisis after the Federal Reserve announced that it had approved the bank's resubmitted capital plans earlier today. Bank of America’s original capital plans were also approved by the Fed, but when it discovered errors that affected the results of the stress test, it was forced to go through the process again. Bank of America has increased its quarterly dividend from $0.01 to $0.05 per share.
Market is unmoved by dividend increase
Bank of America Corp watched its stock drop 6% when it first told regulators that it had found a mistake in data it used for the 2014 Comprehensive Capital Analysis and Review (CCAR), because it meant not only that it would have to spend time and energy preparing another capital plan, but that buybacks were probably off the table for the year. Bank of America re-submitted its plans on May 27, according to its press release.
Analysts did expect to see a dividend increase this year once the new plans were approved, which probably explains why the market hasn’t had a bigger reaction to the news (BAC is up about 0.5% as of this writing, but still below the last month’s average price).
At the time Morgan Stanley (NYSE:MS) analysts Betsy L. Graseck and Michael J. Cyprys felt that the market was also assuming there would be no buybacks through 2016, which seemed like an overreaction considering the amount of capital that Bank of America has on its balance sheet and goes counter to CEO Brian Moynihan’s stated goal to return capital to shareholders.
Bank of America dividend increase follows Zions' recent capital plan approval
This follows the recent approval of Zions Bancorporation (NASDAQ:ZION) re-submitted capital plan, which was a more important development since it was the only bank that the Fed deemed to have too little regulatory capital right now, though other plans were rejected because they spent too much on buybacks and dividends.
Now we’re waiting to hear the eventual results on the resubmitted capital plans from Citigroup Inc. (NYSE:C), whose capital plan was too ambitious, as well as HSBC Holdings plc (NYSE:HSBC), Banco Santander, S.A. (NYSE:SAN), and Royal Bank of Scotland Group plc (NYSE:RBS), who failed the stress test on qualitative grounds.