Bank of America Corporation
) is boosting shareholders' value for the first time since the
financial crisis. The Federal Reserve has affirmed that it has
approved BofA's capital plan (share repurchases and redemption of
preferred shares), submitted under the 2013 Comprehensive Capital
Analysis and Review (CCAR) or the stress test.
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BofA has announced a $5 billion stock repurchase program. Yet,
the expiration date of the program has not been disclosed by the
Notably, the company did not ask for any dividend hike while
submitting its capital plan to the Fed. Currently, BofA pays 1
cent per share as quarterly dividend. However, prior to the
financial crisis, the company used to pay a quarterly dividend of
Moreover, BofA announced the redemption of nearly $5.5 billion
worth of preferred stock by May. The company would be redeeming
8.20% non-cumulative preferred stock, Series H, on May 1, while
the 8.625% non-cumulative preferred stock, Series 8, will be
redeemed on May 28. The notice of redemption for each series is
expected to be sent on or around Apr 1.
This is the first time since the financial crisis that BofA's
effort to boost capital return has been approved by the Fed.
Earlier in 2011, the company's plan to hike dividend were
thwarted by the Fed, when it denied permission for additional
capital deployment. Further, the company did not request for any
new capital plan last year.
We are confident that BofA's efforts to improve capital base and
strengthen balance sheet are bearing fruits. Since 2010, the
company has been striving hard to improve efficiency by divesting
or closing non-core operations and bringing down operating
Among other 17 banks that were required to submit capital plans
to the Fed for approval, only two banks -
) and Ally Financial - were denied permission. Further,
JPMorgan Chase & Co.
The Goldman Sachs Group, Inc.
) have been given a conditional approval.
We believe that BofA's plan to reward shareholders will enhance
investors' confidence in the bank. Further, now that its capital
plan is approved, BofA should not get complacent with its capital
enhancing initiatives. The company should continue striving for
improvement of its balance sheet and capital ratios.
Currently, BofA retains a Zacks Rank #3 (Hold).