Bank of America's profits will be key in Fed stress test: CEO
Bank of America Corp's ability to produce consistent profits will be a key factor in the bank's upcoming U.S. Federal Reserve stress test, Chief Executive Brian Moynihan said on Tuesday.
The second largest U.S. bank by assets has sufficient capital under new global standards, but its earnings are still being affected by losses from its legacy mortgage business, Moynihan said at an investor conference in New York.
"We need to make sure that we have the recurring earnings stream," Moynihan said.
Like other big U.S. banks, Bank of America is preparing to submit a capital plan in January for the Fed's review. The plans can include proposals to increase dividends or repurchase shares.
Bank of America's need to prove its earnings "track record" will likely dampen its request to return capital to shareholders, Bernstein analyst John McDonald wrote in a report last month. He expects the bank will ask for a quarterly dividend of no more than 2 cents per share and share buybacks of $3 billion.
Bank of America's quarterly dividend has been stuck at a penny per share since the financial crisis.
In a change from past stress tests, banks will get a chance to submit a revised request if their initial plan is rejected, but Moynihan said he planned to avoid that option.
In 2011, the Fed denied Bank of America's request for a dividend increase, a major embarrassment for the CEO.
Bank of America has been selling businesses and investments to build capital, while reducing the overall riskiness of its balance sheet. At the end of the third quarter, the bank had a Tier 1 common capital ratio of 8.97 percent, higher than the 8.5 percent threshold that regulators will likely require it to meet.
"It's pretty clear we've got the capital we need, and I think now it's just a question of returning (it to shareholders)," Moynihan said.
Although Bank of America is still dealing with losses from its 2008 purchase of subprime lender Countrywide Financial, the bank is focused on making new mortgages to consumers. The bank will likely issue more home loans in the fourth quarter than in the same period a year ago, Moynihan said.
The bank has been streamlining its mortgage processes to keep up with high volume, he said. "We are not doing the job we need to do on mortgage yet," Moynihan said. "We know that."
In the fourth quarter of 2011, the bank made $21.6 billion in first mortgages. In that quarter, the bank had mostly exited the business of buying loans from other banks and mortgage companies, a move that cut its volume in half.
(Reporting by Rick Rothacker in Charlotte, N.C.; Editing by Nick Zieminski and Jeffrey Benkoe)