U.S. bank misjudged products inherited from Merrill Lynch. It must submit new data to the Fed and should revise its dividend.
This is a very embarrassing admission for Bank of America ( BoA ), whose share price dropped suddenly by almost 5 % yesterday morning on Wall Street : the bank made an accounting error that resulted in levels of equity “hard” lower than we previously thought . And especially below the data transmitted to the Federal Reserve in the last “stress test” that Bank of America had narrowly passed . Result: Bank of America must submit to the central bank, very particular about all these issues , new figures by thirty days. The bank will use the services of a third party to certify the accuracy of the new valuations. Especially , BoA will have to scale down both its allocation plans dividend and redemption of shares. Bank of America had previously increased its dividend by one cent per ordinary share to 5 cents, the first increase in five years, eagerly awaited by its shareholders. The bank also wanted to repurchase up to $ 4 billion of its own shares . All this is now being questioned.
The accounting error in question is related to securities issued by Merrill Lynch before its acquisition by Bank of America in 2009. Two internal units obviously wrong statement on the valuation of these securities .
A very sensitive issue
The case is very significant because , since the financial crisis , the Federal Reserve is very attentive to the solvency of the so-called ” systemic “, whose failure would endanger the entire financial system banks. In March , the central bank has rejected the plans of Citigroup, on the grounds that the bank misjudged the risks associated with its international operations .
Already in March 2011 , Bank of America was denied by the regulator increased its dividend for the second half of the year. Jaret Seiberg , an analyst at Guggenheim Partners, however, puts the incident yesterday : ” Bank of America has apparently done everything from when the error has been detected correctly. We do not see this as a threat to long term, we believe that the Fed will allow the increase in the dividend and share buyback after receiving new data . ” Remains to be seen how high .