Bank of America has been given six months to address lacks and weaknesses in its capital plan.
On Wednesday March 11th, United States Federal Reserve said, a provisional approval has been provided to Bank of America for its plan of shares buyback, keeping in mind the bank’s weaknesses and deficiencies in the development of capital mechanism. The creditor has been given 6 years to provide a statement on the issue. As soon as the news disclosed company’s stock went red by 0.65% and was trading at $15.98 on Friday at 2.14 PM.
The central regulator body evaluates capital plans of almost thirty one United States centered banking companies every year, since the global financial bubble burst in the year 2008. Every creditor is required to get permission in its attempt of returning capital to its stockholders, whether in share repurchase form or as dividends. The regulatory body estimates the monetary health of the largest creditors on whether they can last one more recession.
The current year almost 28 banks got categorical approval from the Federal Reserve System (Fed), however only 2 banks namely Santander and Deutsche Bank did not get approval. The only bank to get conditional approval was Bank of America.
The news of the conditional approval was another hindrance for the bank as it is still in the process of recovering from the global financial crisis. The company is required to address the problem otherwise its repurchase will be restricted by the regulators. Some dimness was also found in various sides of the bank’s method for profit and losses, with some interior control standards. The North Carolina based bank is required to file its blue print capital all over again by the end of September, 2015.
Chief Executive Officer of the Bank, Brian Moynihan said, “(We are) committed to meeting the requirements in the time frame the Fed has established.”
The bank strategy of re-purchasing almost $4 billion stock from some institutional investors via stock exchanges, instead of any individual shareholders .the buyback will take place in the second quarter of current fiscal year and will continue for a year. Furthermore, the stockholders will continuously get $0.5 in dividend every quarter.
Different analysts have different views regarding the company’s decision to buy back shares or pay extra dividend in order to recompense the investors. Repurchasing of shares will help the company to enhance its earnings per share, consequently, will force the share price to surge. However, dividends are preferred by most of the shareholders but they are also taxable.
BofA Sock went up by 0.25% at $16.13 on Tuesday March 16th. It currently has an average “Buy” rating and an average price target of $18.56.