UPDATE 2-U.S. Fed says it does not object to new BB&T capital plan

Fri Aug 23, 2013 3:46pm EDT

By Emily Stephenson and Peter Rudegeair

WASHINGTON/NEW YORK Aug 23 (Reuters) - The U.S. Federal Reserve approved a revised capital plan for BB&T Corp for 2013, and the bank said on Friday that it is maintaining its current quarterly dividend.

With the approval, the only major U.S. bank whose plan has not yet been approved is auto lender Ally Financial, which earlier this week announced plans to sell shares to bolster its capital base.

The Fed vetoed BB&T's plan in March, and the bank submitted a new proposal in June. It was unclear how the original and resubmitted plans differed because the bank is not permitted to provide details on the rejected plan.

BB&T was conservative in crafting its revised capital plan because of uncertainty over future capital requirements, BB&T Chief Executive Kelly King said at a conference in June. But the bank did raise its quarterly dividend 15 percent in January to its current level of 23 cents a share.

The biggest banks must submit any plans they have to buy back shares or pay dividends to the Fed, according to the 2010 Dodd-Frank financial reform law.

The rules came about because regulators noticed during the financial crisis that many banks were raising billions of dollars of capital just months after having bought back shares or paid dividends. Bank executives generally view cutting dividends as a signal of financial weakness, and are often reluctant to take the step even when it is prudent.

The Fed can prevent a bank from buying back shares or paying dividends to make the bank safer, or if it takes issue with the bank's capital planning process.

In addition to rejecting BB&T and Ally's plans in March, regulators warned Goldman Sachs Group Inc and JPMorgan Chase & Co to fix flaws in the way they determine capital payouts.

The Fed said in March it rejected the BB&T plan based on unspecified "qualitative" concerns. The bank said it believed the decision was not related to BB&T's "capital strength, earnings power or financial condition."

BB&T disclosed in its 2012 annual report that the bank had to revise its calculations for risk-weighted assets and risk-based capital ratios.

That miscalculation "may have prompted the regulators to examine BB&T's internal systems and processes more closely," CreditSights analysts said in an August 21 report.

A BB&T spokesman declined to elaborate on the Fed's "qualitative" concerns.

Shares of BB&T fell 16 cents to $35.75 in late trading. The bank's shares have risen nearly 21 percent since the start of the year.

BB&T announced its strongest quarterly earnings ever on July 18. Net income available to common shareholders increased 7.3 percent to $547 million in the second quarter from a year prior, reflecting "record performances from our insurance, investment banking and brokerage, and trust and investment advisory businesses," King said in a statement.

The next round of Fed-administered stress tests begins this fall. King said BB&T would re-evaluate its capital position before it submitted a new plan to regulators in January 2014.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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