By Rick Rothacker
Dec 4 Bank of America Corp's ability to
produce consistent profits will be a key factor in the bank's
upcoming U.S. Federal Reserve stress test, Chief Executive Brian
Moynihan said on Tuesday.
The second largest U.S. bank by assets has sufficient
capital under new global standards, but its earnings are still
being affected by losses from its legacy mortgage business,
Moynihan said at an investor conference in New York.
"We need to make sure that we have the recurring earnings
stream," Moynihan said.
Like other big U.S. banks, Bank of America is preparing to
submit a capital plan in January for the Fed's review. The plans
can include proposals to increase dividends or repurchase
Bank of America's need to prove its earnings "track record"
will likely dampen its request to return capital to
shareholders, Bernstein analyst John McDonald wrote in a report
last month. He expects the bank will ask for a quarterly
dividend of no more than 2 cents per share and share buybacks of
Bank of America's quarterly dividend has been stuck at a
penny per share since the financial crisis.
In a change from past stress tests, banks will get a chance
to submit a revised request if their initial plan is rejected,
but Moynihan said he planned to avoid that option.
In 2011, the Fed denied Bank of America's request for a
dividend increase, a major embarrassment for the CEO.
Bank of America has been selling businesses and investments
to build capital, while reducing the overall riskiness of its
balance sheet. At the end of the third quarter, the bank had a
Tier 1 common capital ratio of 8.97 percent, higher than the 8.5
percent threshold that regulators will likely require it to
"It's pretty clear we've got the capital we need, and I
think now it's just a question of returning (it to
shareholders)," Moynihan said.
Although Bank of America is still dealing with losses from
its 2008 purchase of subprime lender Countrywide Financial, the
bank is focused on making new mortgages to consumers. The bank
will likely issue more home loans in the fourth quarter than in
the same period a year ago, Moynihan said.
The bank has been streamlining its mortgage processes to
keep up with high volume, he said. "We are not doing the job we
need to do on mortgage yet," Moynihan said. "We know that."
In the fourth quarter of 2011, the bank made $21.6 billion
in first mortgages. In that quarter, the bank had mostly exited
the business of buying loans from other banks and mortgage
companies, a move that cut its volume in half.