The Federal Reserve told Bank of America Corp’s (BofA) to rein in its plans for a modest dividend increase, in a sign that regulators still view the lender as being financially weaker than its rivals.
BofA had hoped to be in a second wave of banks raising dividends in the second half of this year. Unlike some of its major competitors such as JPMorgan Chase & Co and Wells Fargo & Co, BofA is still struggling to be consistently profitable and, by some measures, has less capital.
For the last two quarters, the bank has suffered from mortgage-related losses, and it could be on the hook to repurchase billions in toxic mortgages from investors.
The bank did not disclose how much of a dividend increase it was looking for, and did not give a reason for the rejection.
The bank said it intends to submit a revised proposal to the Fed and still hopes to increase its dividend in the second half of the year.
The announcement comes two days after Citigroup Inc restored its dividend to US$0.01 per share — equal to BofA’s current payout — after suspending it in 2009.
Bank of America’s shares ended 1.7 percent lower at US$13.65 after falling as much as 3.7 percent during the day.
The Fed’s move highlights the extent to which the banks that required the least government aid are recovering quickly, while those that required multiple bailouts face a longer road.
“This is a definite black mark for Bank of America and [chief executive] Brian Moynihan,” said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel Inc.
Moynihan told reporters in Detroit the bank did not request a second-quarter 2011 dividend increase because it was still coping with the Merrill Lynch integration and other matters.
“We didn’t ask for it and we’ll go back and resubmit” for a dividend increase in the second half of 2011, Moynihan said after a speech at the Detroit Economic Club.
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