Bank of America: Capital Strength Winner

NEW YORK ( TheStreet) -- Bank of America ( BAC) was the big winner among the largest U.S. banks on Friday, with shares rising 4% to close at $12.57.

The broad indices all retreated, after the Federal Reserve released economic figures that showed strengthening economic growth. The Federal Reserve said U.S. industrial output rose by 0.7% in February, following an upwardly revised level, to unchanged, in January. Economists on average expected production in February to rise by 0.4%, according to Zacks.

The industrial capacity utilization rate in February rose to 79.6% in February, the highest level since March 2008. The February reading was higher than the upwardly revised 79.2% in January and the consensus estimate of 79.3%.

The KBW Bank Index ( I:BKX) was up slightly to close at 57.52, with all but 15 of the 24 index components showing gains for the session.

BB&T ( BBT) was the banking sector loser on Friday, with shares down over 2% to close at $30.98, after the company's 2013 capital plan was rejected by the Federal Reserve.

The rejection of BB&T's capital plan was based on "a qualitative assessment conducted by the Federal Reserve," the regulator said in its announcement late Thursday of the results of the 2013 Capital Comprehensive Capital Analysis and Review, The Fed said it rejected BB&T's plan.

JPMorgan Chase ( JPM) saw its shares pull back 2%% to close at $50.02, after the company's capital plan received conditional approval from the Fed. The company announced late on Thursday it would increase its quarterly dividend to 38 cents from 30 cents, and buy back up to $6.0 billion in common shares through the first quarter of 2014. JPMorgan and Goldman Sachs ( GS) -- which also received conditional approval of its capital plan, although it announced no additional capita deployment -- will each submit revised capital plans by the end of the third quarter.

For JPMorgan, Friday was quite a busy day, in the wake of the release of a bombshell report by Senate Subcommittee on Investigations on the company's "London Whale" hedge trading losses totaling at least $6.2 billion last year.

During the subcommittee hearing on Friday, former JPMorgan Chief Investment Office head Ina Drew placed the blame for the losses on her former traders and a flawed risk model.

The Senate subcommittee report included a recommendation that federal regulators immediately implement the Volcker Rule, which is the ban on proprietary trading by banks included in the Dodd-Frank financial reform legislation. The Federal Reserve proposed rules to implement Volker in October 2011, inviting industry and public comment. The Regulator in April 2011 said that banks would be required to comply with the Volcker Rule by July 21, 2014, but the regulator still hasn't finalized the rule.

Bank of America


Bank of America on Thursday announced it had received Federal Reserve approval to repurchase up to $5.0 billion in common shares and redeem up to $5.5 billion in preferred shares, through the first quarter of 2014. The company didn't request Federal Reserve approval to increase its one-cent quarterly dividend on common shares.

When discussing the CCAR results in general, Guggenheim Securities analyst Marty Mosby said "First, it was obvious that the bank management teams, for the most part, were conservative with their capital distribution requests. Total payout ratios only increased from around 40% to about 55%. Most importantly, the median dividend yield coming out of this year's CCAR is 2.2%.

"This is the first time since the onset of the financial crisis and recent recession that the large cap banks have been able to reestablish a meaningful advantage to the S&P 500," he said.

Bank of America has been at the forefront of the industry's post-crisis cleanup and still has a long way to go in clearing out the mortgage repurchase claims resulting mainly from the company's purchase of Countrywide Financial in 2008.

According to Mosby, the surprisingly high level of capital deployment planned by Bank of America suggests that "patience when you get in the penalty box is rewarded by the Fed."

BAC Chart BAC data by YCharts

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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