Bank of America fined $7.65M by SEC for miscalculating capital ratio

Bank of America has agreed to pay a $7.65 million civil penalty to settle charges resulting from the Charlotte bank’s multibillion-dollar miscalculation of its capital ratios, a regulator said Monday.

The penalty announced by the Securities and Exchange Commission comes after the bank disclosed in April that it had incorrectly accounted for a type of debt it inherited in its 2009 Merrill Lynch acquisition. Bank of America reported the error to the SEC when the bank discovered it in April.

The SEC charged the bank with violating internal controls and recordkeeping provisions of federal securities laws. Bank of America had “deficient internal accounting controls” and “inaccurate books and records” that caused the error, the SEC said.

Bank of America did not admit or deny the SEC’s findings in reaching the settlement. Bank of America spokesman Jerry Dubrowski declined to comment.

The miscalculation stemmed from financial instruments Bank of America acquired when it bought Merrill Lynch. According to the SEC, Bank of America failed to deduct certain losses on the instruments as the bank calculated capital levels.

Starting in 2009, the bank overstated capital levels by “greater and greater amounts” as more of the financial instruments matured, the SEC said. The overstatements grew from $888 million in 2009 to $3.7 billion last year, according to the SEC.

Despite the miscalculation, the bank’s capital levels remained above regulatory minimums during the period.

The bank has not publicly disclosed whether it has taken actions against any employees who were involved in the error.

The penalty adds to the billions of dollars in legal costs the second-largest U.S. bank by assets has paid since the financial crisis. It is a fraction of the size of other settlements the bank has reached, such as the $16.65 billion accord announced last month with the U.S. government and various states over soured mortgage bonds.

Andrew Ceresney, director of the SEC’s enforcement division, said in a statement the size of the penalty reflects credit given to Bank of America for cooperating with the SEC’s investigation. Since the disclosure of the error, the bank is developing improved controls for its reporting of regulatory capital, the SEC said.

The error stalled Bank of America’s plan to raise its quarterly common stock dividend from 1 cent per share, where it had been stuck since the financial crisis.

In March, the Federal Reserve OK’d the bank’s plan to increase the dividend to 5 cents. But that was put on hold after the capital error discovery, which caused the bank to resubmit its request for the dividend increase to the Fed.

In August, the bank announced it had again won Fed approval to raise the dividend to 5 cents. The bank also said it would scrap plans to buy back $4 billion in common stock.

Bank of America shares fell less than 1 percent Monday to $17.01.

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