Bank of America (BAC) announced it had received Federal Reserve approval to raise its quarterly dividend to a nickel from a penny, and to buy back up to $1 billion in common shares from the second quarter of 2014 through the first quarter of 2015. The level of buybacks was a disappointment for many analysts, and bank probably submitted a conservative capital plan because of its $6.3 billion in residential mortgage-backed securities settlements with the Federal Housing Finance Agency and the New York attorney general, which were also announced after Wednesday's market close.
Bank of America said the settlements would reduce its first-quarter earnings by 21 cents a share, which will wipe out most of its earnings, since the consensus first-quarter EPS estimate among analysts polled by Thomson Reuters is 28 cents.
Bank of America came through DFAST with a minimum Tier 1 common equity ratio of 5.9%, according to the corrected figures released by the Fed on Monday, after which the bank lowered its capital-deployment plan. This last-minute lowering of the request between DFAST and CCAR is known as taking a "mulligan."
Citigroup analyst Keith Horowitz in a client note late Wednesday stuck with his "buy" rating for Bank of America and wrote that the disappointing capital return was "largely priced in to the stock" given the pullback over the previous week.
Bank of America's shares were up 1.5% to $17.44 in morning trading Thursday, while the KBW Bank Index (I:BKX) was down 0.4% to 71.76.
Goldman Sachs (GS) also took the mulligan and lowered its planned capital return following DFAST, and was cagey in its capital plan announcement, providing no numbers to investors. CEO Lloyd Blankfein in a statement said, "Our capital plan provides flexibility to manage our capital resources dynamically and return excess capital to our shareholders." Goldman's shares were up 0.4% in early trading Thursday to $162.27.
It was no surprise to see Zions Bancorporation have its capital plan rejected, since the bank failed DFAST last week. But Zions was the only bank to have its capital plan rejected on quantitative grounds. Along with Citi, HSBC North America Holdings (a unit of HSBC (HSBC)), RBS Citizens Financial Group (held by Royal Bank of Scotland (RBS)) and Santander Holdings USA (held by Banco Santander (SAN)) had their capital plans rejected on qualitative grounds.
Zions submitted a capital plan to the Fed that included a $400 million common-equity raise, which the bank said would have brought its minimum Tier 1 common equity ratio under the severely adverse scenario to 4.5%. Zions will submit a revised capital plan by April 30, and Horowitz believes a common equity raise of $630 million may be in store.
Shares of Zions were down 1.8% in morning trading to $29.67. The stock closed at $30.20 Wednesday, down 8% from March 20, when they closed at $32.99 right before the Fed announced the bank had failed DFAST.