Bank of America Corp., the second-largest U.S. lender, won Federal Reserve support to buy back as much as $5 billion in stock, the firm’s first repurchases since the financial crisis.
Bank of America also can redeem $5.5 billion in preferred shares, the Charlotte, North Carolina-based company said today in a statement. The lender’s stock climbed 3.9 percent to $12.58 at 5:29 p.m. in extended trading in New York, after advancing 4.3 percent in 2013 through today’s close.
Buying back stock may help rebuild the credibility of Brian T. Moynihan, who has made restoring shareholder payouts a priority since 2010, when he became chief executive officer. Moynihan came under fire in 2011 after fanning investor expectations for a “modest” dividend increase, only to have the Fed reject his request, and he didn’t ask the central bank for anything last year.
“Buying back common shares is the best way to continue to drive value for our shareholders,” Moynihan, 53, said in the statement. “We have more than adequate capital to support our strategic plans.”
Bank of America said it didn’t seek approval to boost its 1-cent quarterly dividend. Analysts surveyed by Bloomberg predicted on average that the payout would increase to 3 cents, with some estimates as high as 5 cents.
A company’s earnings per share improves when the number of stock units drops, and redeeming preferred shares lowers interest payments. Bank of America has about 10.8 billion shares outstanding, some of it created when the firm sold $19.3 billion of its stock to repay U.S. bailouts in 2009.
The Fed blessing starts to make good on a vow Moynihan made at the lender’s March 2011 investor day, in which he proclaimed the bank, once the biggest in the U.S., was again a “growth company” that could return capital to shareholders.
The lender slashed its 64-cent dividend in 2008 to conserve capital and took $45 billion in government rescues under then-CEO Kenneth D. Lewis. Even after repaying the funds in 2009, Bank of America couldn’t increase payouts because of demands to improve capital ahead of coming international rules.
The bank also trailed JPMorgan Chase & Co. and Wells Fargo & Co. in putting the financial crisis behind it as the company incurred more than $40 billion in costs tied to defective mortgages inherited from the 2008 takeover of Countrywide Financial Corp.
Bank of America’s capital levels rose to a record 9.25 percent last year after Moynihan sold more than $60 billion in assets and purged expensive debt from its balance sheet.
Under this year’s stress tests, Bank of America’s Tier 1 common ratio fell to 6.04 percent after including the lender’s plan to repurchase stock. That’s higher than JPMorgan’s 5.56 percent and Wells Fargo’s 5.94 percent. The minimum required to pass was 5 percent.