BofA blunder likely means no buyback this year

Yesterday's selloff in Bank of America (BAC +1.1%) was likely overdone in light of the bank's capital levels, says Morgan Stanley's Betsy Graseck, suggesting the end result will be BofA scrapping a buyback this year, but reinstating the dividend boost (to $0.05 per share quarterly from $0.01). CLSA's Mike Mayo, on the other hand, says the mistake raises doubt about controls, and reiterates his Sell rating.

Goldman's Richard Ramsden says the bank likely would have failed this year's CCAR (or come very close) based on the new leverage ratios, and notes the lost capital is about equal to the amount of the buyback. At this point, even if BofA passed the CCAR quantitatively, it could fail qualitatively thanks to its accounting processes. Toss in the pending massive litigation settlement with the DOJ (which has come to light post-CCAR).

This will be the first time the Fed has required a bank suspend its capital plan and require a resubmission mid-year, says Ramsden. "In our view this could signal a new level of oversight for banks that wish to continue returning capital when there has been a material change to their risk profile."

Previously: Black eye: BofA suspends buyback, dividend hike

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Comments (9)
  • DeepValueLover
    , contributor
    Comments (11169) | Send Message
    Does this small humiliation hurt BAC's operating revenue going forward?


    How about NIM?


    If the answer is "no effect" then keep on buying and keep thinking about EPS and TBV in 2016, 2017 and beyond.
    29 Apr 2014, 11:53 AM Reply Like
  • Ruffdog
    , contributor
    Comments (3412) | Send Message
    It hurts the perception of BAC. I am concerned that those at the top have on conception of what the underlings are giving them.
    30 Apr 2014, 12:51 PM Reply Like
  • William Ford
    , contributor
    Comments (90) | Send Message
    "black eye"! I am sure a shareholders would rather have a black eye than the capital loses!
    I hope shareholders Suuuuu the crap out of BAC and they should beable to Suuuuu the FED!
    The Gov't from DOJ, to the FED and Congress have destroyed the financvial system of trust!
    29 Apr 2014, 12:02 PM Reply Like
  • SimonSaysShort
    , contributor
    Comments (116) | Send Message
    Hey look, a commenter from ZeroHedge got lost.
    29 Apr 2014, 12:31 PM Reply Like
    , contributor
    Comments (269) | Send Message
    BAC will be back in the 16-17 dollar range in 4-6 weeks.
    29 Apr 2014, 01:29 PM Reply Like
  • rdullom
    , contributor
    Comments (17) | Send Message
    Is this really any different than Citi? The focus shold be on profitability and earnings. Less capital could mean at least a temporary hit to earnings and profitability. EPS will be affected because of the lack of buybacks. The valuation hit however appears to more than factored this in.
    29 Apr 2014, 03:54 PM Reply Like
  • Jdeboer87
    , contributor
    Comments (330) | Send Message
    I know people make mistakes, but this is a big one which impacts peoples expected take home(dividends). Hopefully Morgan Stanely is right and they reinstate the dividend.
    29 Apr 2014, 08:08 PM Reply Like
  • TBV
    , contributor
    Comments (177) | Send Message
    If Fed was to fail BAC qualitatively, why would they even allow BAC to resubmit? Fed can just fail BAC and ask them to try again next year like Citi. As Morgan Stanley mentioned in their report, you must consider the fact that this finding came from BAC. FED needs to promote the idea that if you come forth with a mistake voluntarily, the penalty can be lessen or forgiven.
    30 Apr 2014, 11:10 AM Reply Like
  • Hello Again 83
    , contributor
    Comments (682) | Send Message
    I am super long BAC but being an Indian Giver with share buy backs and dividends is very painful.
    30 Apr 2014, 07:15 PM Reply Like
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