Bank of America delays stock dividend hike after accounting error
That red in the Bank of America logo should match nicely the color in the cheeks of its embarrassed CEO, Brian Moynihan.
The banking giant was forced Monday to again delay beefing up its stock dividend after it discovered a $30 billion accounting error on Merrill Lynch debt.
It’s just the latest setback for Moynihan since his lender acquired the broker five years ago.
Shares of BofA slid 6.3 percent on the disappointing news, to $14.95.
Moynihan’s bank, which also announced it was postponing a move to buy back shares, attributed the moves to “an overstatement” of its tier one capital reserves.
In other words, after the 54-year-old CEO took a look at his assets, he found them a little bit lacking. BofA had less readily available capital in case of events like a crash.
“There are probably more red flags [here] than at any other company I’ve covered in a long time,” said Mike Mayo, a CLSA analyst who has been among the most vocal critics of big banks.
“It’s not the size of the adjustment,” Mayo said. “The issue is the perception of controls. If they could have misstatements at this part of the company, what does it mean for the rest of the $2 trillion balance sheet?”
Moynihan had promised investors last month he would increase BofA’s quarterly dividend to 5 cents a share from 1 cent. That would have been the first such increase since getting lowered in June 2009.
While the Federal Reserve had accepted the bank’s dividend plan, it reversed course Monday, saying BofA had 30 days to resubmit a new dividend plan based on the lower capital totals.
At the heart of the snafu, BofA had still been counting legacy debt from Merrill Lynch, including notes that had matured or were redeemed during the last five years.
About half of the $60 billion of bonds, known as structured notes, were no longer outstanding, according to a person with knowledge of the error.
That phantom capital made the bank look healthier than it really was. As a result, Moynihan was forced to suspend $4 billion in stock buybacks.
The mistake is “not life threatening,” Mayo said in a letter to investors, but makes the bank’s earnings look smaller.
Monday’s accounting revelation is the latest embarrassment for Moynihan rooted in the 2008 financial crisis.
BofA bought Countrywide Financial in 2008, which made the bank the largest mortgage originator at the time.
The lender also completed its purchase of Merrill Lynch in 2009, an acquisition that saved the brokerage from bankruptcy.
The two deals saddled BofA with billions in bad debt from mortgage-backed securities.
Last month, the Federal Housing Finance Agency fined the bank $9.5 billion over $57.5 billion of those securities that were packaged and sold by Countrywide and Merrill Lynch.
The Justice Department is also seeking to fine BofA for toxic loans. JPMorgan Chase settled a similar case for $13 billion in November.
Moynihan succeeded Bank of America’s previous head, Ken Lewis, in January 2010.