Bank of America Corp., which got a $5 billion boost from Warren Buffett last year, now has the top capital among peers and is capable of paying a bigger dividend, said CEO Brian Moynihan.
The bank has fulfilled a goal Moynihan drilled into subordinates since his first day on the job: building a fortress balance sheet, he said in an Oct. 17 staff meeting at the companys Charlotte headquarters.
Were going to officially declare victory on one of those operating principles, Moynihan said in the town-hall style meeting. The reason why is, we have the top capital in the industry, the top liquidity in the industry. People have stopped asking if the bank needs more funds to absorb losses and now want to know when investors will get the excess, he said.
His display of confidence is a turnaround from last year, when investor concerns about the banks health spurred Buffetts Berkshire Hathaway Inc. to offer a $5 billion injection, just as it had done for Goldman Sachs Group Inc. during the financial crisis. Bank of America went from trailing peers to having the industrys best balance sheet, Moynihan said last week.
Unlike last year, the CEO avoided saying the dividend would increase, telling staff that he wont get ahead of the Federal Reserves 2013 approval process. Moynihan, 53, was criticized in 2011 for implying the dividend would rise, only to have the central bank reject his request. The company passed this years Fed stress test by leaving payouts unchanged.
Moynihans remarks about capital could be premature if costs from defective mortgages and litigation are worse than expected, said Paul Miller, an FBR Capital Markets analyst who has a hold rating on Bank of America shares. Faulty home loans and foreclosures have cost the lender more than $40 billion since the start of 2007, data compiled by Bloomberg show.
They still have a lot of liabilities, and its going to put pressure on their capital base if these lawsuits go the other way, Miller said. What he has done is shrunk the balance sheet more than generated a lot of capital.
Bank of Americas capital has improved quickly, making the chances for a dividend increase or stock repurchases in 2013 much better, Ed Najarian, an analyst at International Strategy & Investment Group Inc., wrote last week in a note. Larry DiRita, a spokesman for the lender, declined to comment.
Bank of America closed at $9.36 Tuesday, down nearly 2 percent amid a broader market decline.
Last weeks meeting gave Moynihan an opportunity to demonstrate how his firm is recovering after buying Merrill Lynch & Co. and Countrywide Financial Corp. during the financial crisis. The 1-cent quarterly dividend, smaller than JPMorgan and Wells Fargo & Co.s, is a vestige of the duress Bank of America faced when it took $45 billion in U.S. bailouts, which the company repaid in 2009.
Boosting the payout will be on the table after the next Fed stress tests in March, Moynihan said. Regulators judge banks progress under tougher international capital guidelines before allowing them to take actions including dividend increases. The worlds biggest lenders must reach Tier 1 capital levels of at least 9 percent by 2019 under Basel Committee on Banking Supervision rules.
All of the capital we have above the level we need, which is 9 percent, will go back to the shareholders at some point, Moynihan said. We are done with where we are supposed to be in six years today. If we did not earn a dollar, we would not have to raise another dollar of capital.
In the staff meeting, which was broadcast to Bank of America offices worldwide, Moynihan and CFO Bruce Thompson portrayed the firm as having stabilized revenue from consumer and corporate units while cutting costs and sloughing off liabilities from previous acquisitions.
Bank of America trimmed 2,866 workers in the third quarter amid Moynihans cost-cutting plan, which seeks at least 30,000 job reductions and $8 billion a year in savings. That left the company, the biggest employer among U.S. banks, with 272,594 workers by Sept. 30. The bank employs about 15,000 in its headquarters city.
We are dropping about 3,000 a quarter, and we should stay on that path, as best we can tell, Moynihan said. Were trying to mitigate the human side of this by looking for every place we can have our teammates join us and do something else.
The bank has an annual attrition rate of 10 percent, which means that managers are aided in their headcount-reduction goals by simply not hiring in some areas, the CEO said.
The firm posted third-quarter net income of $340 million, breaking even on a per-share basis, after a legal settlement tied to the Merrill Lynch takeover and accounting charges almost wiped out profit. That beat the average estimate of a 7-cent loss by 15 analysts surveyed by Bloomberg.
I dont think weve ever had a quarter where we had zero earnings per share and felt as good about the progress we made, Thompson told staff.