BofA sends revised capital plan to Fed

Bank of America’s revised plan to return cash to shareholders was on its way Wednesday to the Federal Reserve, which earlier this year told the lender to correct deficiencies the regulator found in its capital planning process.

At stake for Bank of America shareholders are billions of dollars in planned buybacks of the Charlotte lender’s common stock. In March, the Fed gave the bank conditional approval for $4 billion of the repurchases – but also warned it may restrict the buybacks if the lender didn’t satisfactorily address the deficiencies.

Wednesday was the deadline for the bank to make its fixes and resubmit the plan. In March, the Fed said it found weaknesses in certain aspects of the bank’s loss and revenue modeling practices as well as in some aspects of the lender’s internal controls.

Bank of America and the Fed declined to comment Wednesday.

The Fed initially disclosed the deficiencies in reporting results of its most recent round of “stress tests.” In those annual exams, the Fed measures whether the largest U.S. banks have enough capital to absorb losses in another economic downturn.

CEO Brian Moynihan is under pressure to improve the bank’s performance on the tests. March’s results marked the lender’s third stumble out of the past five exams.

Moynihan briefly discussed the capital plan resubmission while meeting with reporters in Charlotte last week: “We’ve done all the work we believe we’re supposed to do,” he said.

Following the Fed’s March findings, the bank disclosed that Terry Laughlin, a Moynihan direct report based in New York, was being tasked with leading the capital plan resubmission.

In addition, the bank this year has said it has sought outside help to improve its stress test processes. All of the additional efforts are estimated to cost the bank $100 million this year, the lender has said.

Bank of America is not the first bank to be told by the Federal Reserve to resubmit a capital plan. In 2013, JPMorgan Chase & Co. and Goldman Sachs Group were required to resubmit and address weaknesses the regulator found.

Last year, Bank of America had to resubmit after it discovered a $4 billion error in how it calculated capital ratios.

“It’s our view with each passing year the banks should be getting better at navigating this stress test,” said Shannon Stemm, a bank analyst with Edward Jones. She said she expects Bank of America won’t have problems addressing the issues the Fed noted in March.

The Fed has not said how it might restrict Bank of America’s plans to buy back shares. The bank has already repurchased $775 million in common stock out of the $4 billion.

The regulator is expected to respond within 75 days.

This story was originally published September 30, 2015 at 6:11 PM with the headline "BofA sends revised capital plan to Fed."