UPDATE 3-BofA raises dividend for first time in 7 years

Wed Aug 6, 2014 11:49am EDT

(New throughout, adds details of plan and background)

Aug 6 (Reuters) - Bank of America Corp said on Wednesday the Federal Reserve has approved its plan to raise its quarterly dividend for the first time since the financial crisis.

The bank's shares rose as much as 2.4 percent after Bank of America said it would increase its quarterly dividend to 5 cents per share from 1 cent.

The dividend increase is the latest step toward normality for a bank that is still trying to move past the financial meltdown. But the dividend would still be far below its pre-crisis level.

In 2006, Bank of America paid out about 45 percent of its earnings as common share dividends. Based on analysts' average forecasts for the bank's earnings for the next four quarters, it would be paying out closer to 10 percent of its earnings as common-share dividends under the just-approved plan.

The bank won approval to increase its dividend only after having its prior proposals for the 2014 process rejected twice. The Fed nixed the bank's first request because it was too high, and its second request because the bank found a mistake in the way it accounted for its liabilities for regulators that ended up cutting its capital levels, or its assets minus liabilities.

In its second attempt, the bank sought to buy back another $4 billion of shares and to spend about an extra $1.5 billion a year on its dividend. For its third request, it only sought to boost its dividend.

Raising the dividend has been a top priority for Chief Executive Brian Moynihan. Prior to the crisis, the bank paid a quarterly dividend of as much as 64 cents per share, a level that it cut in half for the fourth quarter of 2008 and then cut to a penny a share in 2009. Those high dividend payouts made bank stocks a standard holding for investors seeking income from their portfolio.

Bank of America, like other major banks globally, was slow to cut its dividend as the U.S. housing market crumbled, because it did not want to signal that it was in distress. Rulemakers responded by requiring big banks to receive regulatory approval before paying out dividends.

In late morning trading, the bank's shares were 1.9 percent higher, at $15.29. (Reporting by Tanya Agrawal; Editing by Dan Wilchins, Saumyadeb Chakrabarty and David Gregorio)

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