Shares of Bank of America Corporation BAC closed modestly in the green on Thursday after the Federal Reserve approved the bank’s revised capital plan. The approval was declared through a press release wherein the Federal Reserve said that the company’s “progress in remediating the identified deficiencies in its capital planning processes” led to the sanction of its plan.
Notably, at the Comprehensive Capital Analysis and Review (“CCAR”) in Mar 2015, the Federal Reserve had highlighted certain loopholes in BofA’s capital planning processes, including deficiency in loss & revenue modeling practices and internal controls. As such, the capital plan had received a conditional approval from the Federal Reserve, with BofA required to submit a revised plan before Sep 30.
Though the Federal Reserve has given its consent, the regulator warned that the lender “must continue to make steady, demonstrable progress prior to the 2016 CCAR cycle” toward risk management and capital planning.
Nonetheless, we expect the approval to help BofA delight its shareholders with a dividend increase, following results of the 2016 stress tests. Notably, the bank has maintained its dividend at 5 cents per share since the beginning of 2014; while its peers including Wells Fargo & Company WFC and JPMorgan Chase & Co. JPM hiked their dividends by 7% and 10%, respectively, following the approval of their capital plans by the Federal Reserve in Mar 2015.
Currently, BofA’s dividend yield of 1.6% considerably lags that of Wells Fargo and JPMorgan which offer yields of 2.5% and 2.7%, respectively. Moreover, the company’s stock has lost close to 3.9% year to date, compared with a 0.9% fall in Wells Fargo’s stock and 4.8% gain for JPMorgan. Hence, we believe a higher dividend will help strengthen BofA’s competitive position.
BofA currently has a Zacks Rank #3 (Hold). SunTrust Banks, Inc. STI is a better-ranked stock in the banking space, holding a Zacks Rank #2 (Buy).
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