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Black eye: BofA suspends buyback, dividend hike

  • At issue is a downward revision to the bank's capital ratios due to an incorrect treatment of certain structured notes assumed in 2009's Merrill Lynch acquisition.
  • The new estimated tier 1 capital ratio of 11.9% is 21 basis points lower than previously thought.
  • Bank of America (BAC) has notified the Fed, and has suspended its capital plan which included a $4B buyback this year as well as a boost in the dividend to a nickel per share from a penny. After third-party review, the bank expects to resubmit its capital plan to the Fed ASAP.
  • Shares -2.4% premarket
  • Source: Press Release
Comments (45)
  • Financial Insights
    , contributor
    Comments (945) | Send Message
     
    Time to buy some more.
    28 Apr, 08:50 AM Reply Like
  • Grant Dossetto
    , contributor
    Comments (139) | Send Message
     
    Nothing ever changes.
    28 Apr, 08:53 AM Reply Like
  • Ted Bear
    , contributor
    Comments (573) | Send Message
     
    ...and folks want to buy these things because "they are 'cheap' relative to Book Value..."

     

    bwahhhhaaaaaaaaa.........

     

    The financials of these large banks are so fugazy that you couldn't remotely calculate what fair book value might be, but it certainly isn't anything close to what people currently are guestimating.

     

    Wait for the next puke and you will see what people are REALLY willing to pay for a major bank.
    28 Apr, 08:55 AM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3196) | Send Message
     
    Book Value for a bank in this post-crisis era is an out-and-out lie. When they start marking their assets to market again, then you might cautiously consider trusting a bank.
    28 Apr, 10:07 AM Reply Like
  • campito
    , contributor
    Comments (46) | Send Message
     
    This is truly unacceptable.

     

    I think someone at the higher level at BAC should take responsibility and leave.

     

    Also full disclosure in relation of the dirty laundry with the legal reserves should be release.

     

    It is becoming a big bag of cats with obscure issues emerging.

     

    Not even the FRB has any idea as to what is going on in BAC
    28 Apr, 08:56 AM Reply Like
  • William Ford
    , contributor
    Comments (90) | Send Message
     
    speaks to mgmt! just a modicum of incompetence.
    28 Apr, 09:00 AM Reply Like
  • pfras
    , contributor
    Comments (16) | Send Message
     
    How can this happen? Is management really this incompetent? Heads need to roll- no golden parachutes. This is just plain incompetence
    28 Apr, 09:05 AM Reply Like
  • bbro
    , contributor
    Comments (9309) | Send Message
     
    Still loaded with capital....
    28 Apr, 09:08 AM Reply Like
  • bbro
    , contributor
    Comments (9309) | Send Message
     
    BAC has 144 billion in tangible common equity to back up 916 billion in loans
    and the end of 2008 it had 48 billion in tangible common equity to back up 931 billion in loans....
    28 Apr, 09:26 AM Reply Like
  • Ruffdog
    , contributor
    Comments (1221) | Send Message
     
    "...BAC has 144 billion in tangible common equity to back up 916 billion in loans..."

     

    How do we know for sure? Remember Countrywide and what BAC told us. Remember raising the dividend and now they suspend dividend payment. I guess I will be involved in another BAC class-action lawsuit.
    28 Apr, 09:46 AM Reply Like
  • FChildr131
    , contributor
    Comments (9) | Send Message
     
    $BAC just turned the clock back another year at least for shareholders..mistakes happen but how many times are forgivable ? Outside Accounting firm review? geez
    28 Apr, 09:15 AM Reply Like
  • hkbk2011@gmail.com
    , contributor
    Comments (15) | Send Message
     
    going down like a rock right now.. time to buy or sell?
    28 Apr, 09:26 AM Reply Like
  • XPuR3
    , contributor
    Comments (39) | Send Message
     
    lol how can this even happen? Are they really this incompetent?
    28 Apr, 09:39 AM Reply Like
  • B4ngZ00m
    , contributor
    Comments (95) | Send Message
     
    That was exactly what I thought this morning. It almost seems surreal.
    28 Apr, 02:17 PM Reply Like
  • Tack
    , contributor
    Comments (12715) | Send Message
     
    When the Government is lining its pockets by extorting many tens of billions from each major bank, why is any of this a surprise?
    28 Apr, 09:44 AM Reply Like
  • papayamon
    , contributor
    Comments (1058) | Send Message
     
    Bought 5k shares at 15.10. Thanks, Mr. Market!
    28 Apr, 09:45 AM Reply Like
  • hkbk2011@gmail.com
    , contributor
    Comments (15) | Send Message
     
    smart. you're already making money
    28 Apr, 10:17 AM Reply Like
  • papayamon
    , contributor
    Comments (1058) | Send Message
     
    Didn't quite end up that way today, but this was an over reaction. Ended up buying 8500 shares total and a total of 360 Jan 15 2016 calls. BAC in the low 20's means I have finished funding my retirement. The market gave us good compensation for the DOJ settlement by discounting the price over $1 today.

     

    I suppose the government thinks it has to fund supporting those who are too lazy to work and too stupid to save on the backs of those who do work and invest. Entitlements (what entitles anyone to steal my money?) will be the real destruction of America. Of course, the deadbeat idiots are never held responsible for anything. All you have to do is whine and seek freebies and you can lay around on your couch, watch reality TV and do nothing for yourself. Got a toothache because you spend your money smoking and drinking instead of paying to get your teeth fixed? No problem. Call 911 for that toothache, and they'll blow $400 of taxpayer money to transport your worthless butt to an ER. You'll get a script for narcotics you can sell on the street for party money. Then of course, you are entitled for a taxpayer paid for ride home.

     

    Really disgusting what is happening to America. Is the answer really importing terrorists and handing them well over 100k of taxpayer money so we can be thanked by having them blowing up the Boston Marathon? America used to be great. Now? You can't get rid of the libtards because they bribe those who vote for them with government "freebies".
    28 Apr, 04:52 PM Reply Like
  • Ruffdog
    , contributor
    Comments (1221) | Send Message
     
    No, but Papayamom will be.
    29 Apr, 08:39 PM Reply Like
  • Ruffdog
    , contributor
    Comments (1221) | Send Message
     
    Nice, at what strike price did you buy the Jan 15 2016 calls?
    29 Apr, 08:41 PM Reply Like
  • RALPHSCHAUSS
    , contributor
    Comments (58) | Send Message
     
    This is completely unacceptable ! The CFO and his top staff need to take a rigorous referesher course in Basic Business Finance and arithmetic, hand back all their bonuses for last year !
    This is really poor performance, only marginally better than Citi's snafu with the Fed in April.
    When will we ever see BAC finacially performing like a normal company ??

     

    Of course,
    the DoJ with their financial greed does not help at all !
    28 Apr, 09:45 AM Reply Like
  • garysund
    , contributor
    Comments (193) | Send Message
     
    This will hurt the stock for awhile. They are still a good bank and the stock is under valued. Look at this drop as a great time to buy more at a discount. It won't take that long for the stock to bounce back.
    28 Apr, 09:46 AM Reply Like
  • Ruffdog
    , contributor
    Comments (1221) | Send Message
     
    I guess Obama was right the banks are bad, especially BAC!
    28 Apr, 09:48 AM Reply Like
  • helicopterDeadBenjamins
    , contributor
    Comments (20) | Send Message
     
    What an incredible blunder. I tire of the endless "buying opportunities" in the bank stocks. Long BAC and C. Not sure which one has more egregious mistakes- failing the stress test or announcing div/buyback with bad numbers and then pulling it back. These kind of errors only promulgate the TBTF droning on and on and will result in even more litigation expense. They must be way more attentive to the details.
    28 Apr, 09:53 AM Reply Like
  • whiff
    , contributor
    Comments (640) | Send Message
     
    I can only imagine how these guys valued Countrywide ... I would check the CFO's credentials.
    28 Apr, 10:12 AM Reply Like
  • Hello Again 83
    , contributor
    Comments (428) | Send Message
     
    Moynihan is brilliant but this is so unacceptable. I dont care what business you are in the is unacceptable. Heads need to roll.
    28 Apr, 11:15 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (15446) | Send Message
     
    More Problems For Bank Of America And Its Shareholders $BAC http://bit.ly/1isVJAD
    28 Apr, 12:12 PM Reply Like
  • Nate Sterling
    , contributor
    Comments (414) | Send Message
     
    This makes BAC look really stupid and silly, announcing a dividend increase to $.05/share and a $4 billion 2014 buyback then announcing they screwed up their accounting of structured notes and so they're pulling their dividend and buybacks. A lot of investors plowed in a lot of money into BAC relying on the accuracy of BAC's accounting, now they've lost a ton of money. This will no doubt end up as a class action lawsuit against BAC for misrepresentation of their numbers, just one more litigation expense in an endless stream of litigation expenses for BAC.
    28 Apr, 11:33 AM Reply Like
  • NUNAY the KING
    , contributor
    Comments (194) | Send Message
     
    2 1/2 years ago, you could have got this stock at 5 bucks, and had a triple. What a bunch of CRYBABIES! I'll be buying more of the stock in the near future, as long as Moynihan is around.
    28 Apr, 11:42 AM Reply Like
  • Jason B
    , contributor
    Comments (269) | Send Message
     
    Buy with as many hands as you can find. Once Holder is gone these stocks will triple.
    28 Apr, 11:50 AM Reply Like
  • nels2727
    , contributor
    Comments (14) | Send Message
     
    They said it was a modeling error, but there is real reason to doubt that is actually the case. This announcement comes the immediate business day following the DOJ'S request for $13bn in settlements for bad mortgages sold to Fannie and Freddie by both Countrywide and Merrill. The cynic in me thinks the "mistake" made in the capital plan was in expectations for the cost of that settlement not in losses on specific structured notes.
    28 Apr, 11:51 AM Reply Like
  • tehfleet
    , contributor
    Comments (10) | Send Message
     
    Well it was just a couple of zeros, nothing printing can't fix
    28 Apr, 11:51 AM Reply Like
  • Jdeboer87
    , contributor
    Comments (204) | Send Message
     
    This is really bad. How can they make such a big mistake? This will impact shareholders total return.
    28 Apr, 11:56 AM Reply Like
  • Regarded Solutions
    , contributor
    Comments (15446) | Send Message
     
    .....More Problems For Bank Of America And Its Shareholders $BAC http://bit.ly/1isVJAD
    28 Apr, 12:13 PM Reply Like
  • B4ngZ00m
    , contributor
    Comments (95) | Send Message
     
    Yes Regarded, we all know you wrote an article.
    28 Apr, 02:13 PM Reply Like
  • bbro
    , contributor
    Comments (9309) | Send Message
     
    One explanation...

     

    "When BofA acquired Merrill, it had to begin factoring the value of the structured notes into its capital ratios. Accounting rules require banks to record the actual value of the notes each quarter. This is called mark-to-market accounting. If the value rises and it would hypothetically cost the bank more to retire the debt, that change is recorded as a loss for accounting purposes. Likewise, if the cost to retire the debt declines, it is booked as a gain.
    Here's where BofA messed up. It properly accounted for these changes in its earnings each quarter. But when it calculated its regulatory capital ratios, the bank improperly counted realized gains and losses on those structured notes into its capital ratios. But it was only supposed to count unrealized gains and losses, meaning tallying only the values that changed on paper. Realized gains and losses, such as the actual sale or maturity of structured notes, were factored into the earnings statement and didn't need to be factored into the capital ratios. "

     

    This is a minor issue....
    28 Apr, 01:42 PM Reply Like
  • James Myung
    , contributor
    Comments (251) | Send Message
     
    This is not a minor issue. If you booked it as realized gains or losses. The portion of adjustment is gone and buried in retained earning - non-existence whatsoever in BAC's book. This will be minor only if that realized gains and losses is not MATERIAL. I would like to know quantitative figure of the amount.

     

    If the amount is material, it could also impact the taxes as well as penalty and interest assessed by IRS on that amount.

     

    Due to this disclosure issue, this also could impact IFRS treatment of reversing impaired assets. IFRS policy allows reversal of impaired assets. What was the fair value figure of impaired assets in Countrywide and Merrill before the crisis? BAC could unrealized gain on those reversals and BAC's book could turn out to be a MONSTER. This means the BAC's book is significantly undervalued, as those realized gains or losses removed the real value of the BAC could have had.
    28 Apr, 02:17 PM Reply Like
  • Bugle Boy
    , contributor
    Comments (80) | Send Message
     
    Thanks for the lucid explanation of the issue. I did not really know where to look for a detailed explanation.
    28 Apr, 08:19 PM Reply Like
  • bbro
    , contributor
    Comments (9309) | Send Message
     
    A .21 move in the Tier 1 ratio is not that big a deal for an investor especially since it is 11.9%...BAC had a tier 1 ratio of 4.6% after the May 2009 stress tests....now that was bad....
    28 Apr, 01:58 PM Reply Like
  • Econ Student
    , contributor
    Comments (197) | Send Message
     
    Personally I don't think the notes were the issue here. I think it's that potential $13 billion settlement. I'd rethink my $4 billion buyback if I had to pay $13 billion.
    28 Apr, 02:22 PM Reply Like
  • qcswral
    , contributor
    Comments (5) | Send Message
     
    I never read so much hype to buy a stock over the past several months and watch it behave exactly the opposite of what these so=called "analysts" predicted.....I do believe BAC will get through this .... albeit.....now it will be another 5 yrs before the stock responds positively..LOL
    28 Apr, 02:25 PM Reply Like
  • krug
    , contributor
    Comments (80) | Send Message
     
    Really? Most overhyped stocks fail to perform as hyped and typically are outstanding underperformers. You must have never followed any small caps.
    29 Apr, 12:26 PM Reply Like
  • NowGetReal
    , contributor
    Comment (1) | Send Message
     
    Terrible news this am for shareholders regarding BAC's capital plan suspension. As a shareholder, I feel next to helpless to what I believe is a dramatic display of arrogance and irresponsibility on the part of BACs management and Board of Directors. They need to share the costs of this latest blunder. How many more blunders?? Most recently, the major discrepancy in BAC's teir 1 capital ratio between the Fed and BAC and now this.
    Needless to say, there are a number of variables in play here, including the Obama and Elizabeth Warren vendettas, but BAC's management must be smarter and more adept at handling these adversities. They need to "fight back" against more of these lawsuits, and they need to be more cognizant of its shareholders' tolerance, including mine.
    28 Apr, 02:30 PM Reply Like
  • jackooo
    , contributor
    Comments (1484) | Send Message
     
    The problem is credibility. It has just reached zero with me.
    28 Apr, 02:45 PM Reply Like
  • vidmon
    , contributor
    Comments (2) | Send Message
     
    Maybe the stock will bottom out again at $5 per share. (I'm pretty sure that will not happen anytime soon.) I'll buy another 30,000 shares and sell 20,000 at $17.50. This stock has been a roller coaster ride. The Feds are not about to let this company go out of business but will continue to point their fingers at all financial institutions until they are satisfied with how the economy is going. I know this statement will not be popular with some people but I’m really ticked off how many people took out loans and still continue to do so knowing they are living beyond their means only to claim bankruptcy and let the rest of us pay their bills. I guess that’s another discussion altogether so I’ll leave it at that.
    I'm keeping the stocks I have left and will buy again once this new crisis has lowered the price a bit more or the day of their next quarterly results. BAC is still a buy with two of my stock advisors and I'm in it for the long haul. I'm keeping my fingers crossed that someone doesn't go to a fast food chain, buy a cup of coffee using a BAC credit or debit card, burn themselves and name BAC as part of their lawsuit. If BAC could hire a few accountants that know what they are doing that would be great too!
    29 Apr, 04:50 AM Reply Like
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