Bank of America's rocky road over the past few years has centered on mortgage loan repurchase demands from investors, for mortgage-backed securities issued before 2008. The company said on Jan. 18 that mortgage putback claims totaled $28.3 billion as of Dec. 31, however, the bank's
with Fannie Mae in early January lowered the repurchase claims by about $12.2 billion.
The next major event for Bank of America investors is likely to be the Federal Reserve's completion of its annual stress tests for the nation's largest banks on March 14. With Bank of America reporting a Dec. 31 Basel III Tier 1 common equity ratio of 9.25%, the company has exceeded the capital requirement under the Federal Reserve's proposed capital rules, that won't be completely phased-in until January 2019. That's why Mosby estimates the company will receive approval to raise its quarterly dividend to $0.05 a share from the current nominal payout of $0.01.
Mosby on Feb. 5 was careful to say in his report that his dividend estimates were "based on the assumption that we believe it is in management's best interest to use all of their excess capital to increase their dividends instead of repurchasing shares," so investors could see the bank choose a smaller dividend increase, along with some share buybacks.
Oppenheimer analyst Chris Kotowski on Feb. 4 said that he would "counsel investors to have guarded expectations, particularly as it relates to BAC, [<b>Citigroup</b> <span class=" TICKERFLAT">(<a href="/quote/C.html">C</a><a class=" arrow" href="/quote/C.html"><span class=" tickerChange" id="story_C"></span></a>)</span> and <b>CIT Group</b> <span class=" TICKERFLAT">(<a href="/quote/CIT.html">CIT</a><a class=" arrow" href="/quote/CIT.html"><span class=" tickerChange" id="story_CIT"></span></a>)</span>]," for a return of capital to investors. "While all three companies have high and rising capital ratios, the industry's recent history suggests that the banks get let out of the penalty box only very slowly," he wrote.
Following the completion of the stress tests, Kotowski expects Bank of America to be approved to raise its quarterly dividend to $0.03, with Citigroup raising its quarterly dividend to $0.10 from $0.01, and CIT Group initiating a quarterly dividend of $0.31.
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-- Written by Philip van Doorn in Jupiter, Fla.