Banking

The ‘D word’ is prominent in Bank of America’s CEO letter – and that could be a good thing

Bank of America CEO Brian Moynihan, right, speaking with Michael Marsicano, president and CEO of Foundation for the Carolinas, at a luncheon at the Hilton Charlotte Center City.
Bank of America CEO Brian Moynihan, right, speaking with Michael Marsicano, president and CEO of Foundation for the Carolinas, at a luncheon at the Hilton Charlotte Center City. dlaird@charlotteobserver.com

Bank of America CEO Brian Moynihan uses the “D word” nine times in this year’s annual letter to shareholders, and that could be a good thing for long-suffering investors.

In addition to efforts to repurchase the bank’s shares, “we are also focused on increasing the dividend,” Moynihan wrote in the three-page letter posted online Wednesday as part of the bank’s 2016 annual shareholder report.

Moynihan, CEO since 2010, mentioned the dividend only once in his 2015 letter and long has been careful about setting investor expectations too high.

In the midst of the financial crisis, Bank of America slashed its quarterly payout to a penny per share from 64 cents per share. It’s now at 7.5 cents per share after Federal Reserve approval in June.

Bank of America is in a better position to return capital to investors because it made nearly $18 billion in profits last year, the second-best year in its history. It’s finances have taken a positive turn now that it’s not paying huge legal settlements each quarter for past mortgage-related and other transgressions.

In his letter, Moynihan takes pains to explain that the company has many more shares outstanding now than it did before the crisis: around 11 billion, up from 4.4 billion at the beginning of 2008. That’s because it issued billions of shares to make acquisitions and boost capital when the economy turned.

That means the dividend won’t be headed to 64 cents per share any time soon because the payout is now spread out over many more shares. The bank is working to repurchase shares in order to reduce its overall shares outstanding, but that’s not a fast process.

Through the bank’s “responsible growth” strategy, Moynihan writes in his letter, “we can deliver the returns that you expect from us and continue to return excess capital to you through dividends and common stock repurchases.”

Raising the dividend and buying back stock, of course, isn’t a decision solely at the discretion of Bank of America’s executives or directors. The Federal Reserve Board now gives its assent to dividend increases and stock buybacks at big banks as part of annual “stress tests.”

The next round of results are due in June. A Bank of America spokesman declined to comment on the bank’s Fed submission.

In the meantime, investors can enjoy a recent run-up in Bank of America’s stock price. The shares were trading Wednesday above $25, up nearly 50 percent since Donald Trump’s presidential election win. The stock, however, is still far below an all-time high of nearly $55 set back in November 2006.

Rick Rothacker: 704-358-5170, @rickrothacker

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