Downright ugly
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There’s a new leader in the ugly bank sweepstakes.
Brian Moynihan’s Bank of America yesterday became the only bank among the top 10 to have its bid to reinstate a dividend turned down. The denial allowed BofA to vault ahead of Vikram Pandit’s Citigroup, which has held the lead position in the troubled bank bakeoff since the start of the housing meltdown.
The decision by the Federal Reserve to reject the Charlotte, NC, bank’s plan to reinstate its dividend foists fresh humiliation at the feet of BofA’s management team, including Moynihan. It has been trumpeting the bank’s plans to return money to shareholders.
The Fed’s move also casts new doubt on how well the country’s biggest bank will be able to navigate a mortgage crisis that continues to prove a thorn in the side of some of the nation’s banks. Many of them are facing a mortgage settlement with regulators and 50 state attorneys general that could see them saddled with a whopping $30 billion in penalties.
“The [Fed] is clearly not comfortable with BofA’s projected profitability because of all the outstanding liabilities they have,” said Jonathan Finger, managing partner at Finger Interests Number One, which owns a substantial chunk of BofA.
The Fed told the bank it may submit a revised plan to increase its dividend later this year. But by then, rivals will have already enticed investors back with higher dividends.
In addition to possible payments that may result from mortgage-settlement talks, BofA may have to repurchase as much as $15 billion in mortgages from private investors, Finger said.
“This move is a disappointment to shareholders who were counting on some significant increase in the dividend in the first half of the year,” said Marshall Front, founder of investment firm Front Barnett.
“There’s still some mystery to the [rejection by the Fed] because Bank of America has said that they don’t know why their application to increase their dividend was rejected. There’s a lot of unanswered questions,” Front said.
Citi announced on Monday plans for a 1-for-10 reverse stock split and a penny-a-share dividend after the split is completed in May.
Shares of BofA fell as much as 2.5 percent yesterday, but regained some ground to close at $13.64, down 1.7 percent, erasing $2.3 billion in market cap. The stock is the worst performer in its peer group during the past five days and the past year.
“This was very negative news,” said one Wall Street banker, who speculated that the bank may have to raise fresh capital to fortify its balance sheet and appease both investors and regulators.
BofA CEO Moynihan has been contending with a litany of problems, largely inherited from his predecessor Ken Lewis, who stepped down at the end of 2009.