Bank of America Dividend Surprise?

NEW YORK ( TheStreet) -- Bank of America ( BAC) has been seen by many analysts as unlikely to raise its dividend following Federal Reserve "stress tests" next week but at least one analyst thinks the bank will get the okay.

After being embarrassed last year when it sought Fed approval for a dividend increase and didn't get it, Bank of America has said it won't seek such approval this time around.

That has led some analysts to simply assume no near-term dividend hike. For example, in a recent research note RBC Capital Markets analyst Gerard Cassidy assumed no dividend hike for Bank of America, noting it "did not request approval of any return of capital strategies."

Following a study of bank dividend expectations in the options market, Oppenheimer analyst Chris Kotowski stated in a research note that neither Bank of America or Morgan Stanley ( MS) is expected to raise dividends this year, judging from pricing on January 2013 options.

"This lines up very well with our own expectations," Kotowski wrote, arguing that Bank of America "is still in the penalty box," and that Morgan Stanley will use its capital to continue upping its stake in Morgan Stanley Smith Barney, the wealth management joint venture with Citigroup ( C) controlled by Morgan Stanley.

Bank of America's current annual payout is four cents per share, versus 20 cents for Morgan Stanley.

Rochdale Securities analyst Dick Bove think Bank of America will surprise the market, however.

"Bank of America has simply stopped talking about dividends and dividend payments because of the uncertainty as to whether in fact they're going to get any type of allowance from the Fed to increase their dividend. My belief is they will be able to increase the dividend. Maybe it won't be in the first quarter, but it will be certainly I think by the second quarter," Bove said in an interview.

Bank of America has been selling assets and converting preferred shares to common shares in order to strengthen its balance sheet. A capital strength ratio known as Tier 1 common improved to 9.86% at the end of 2011 versus 8.6% at the end of 2010. Looking at another measure, its tangible common equity (TCE) ratio of 6.5% is below the 7.9% posted by Citigroup but higher than JPMorgan Chase ( JPM)'s 5.5%, according to research from RBC's Cassidy. The median TCE for large caps tracked by Cassidy is 7.7%.

-- Written by Dan Freed in New York.

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