Bank of America Corp (BAC) Will Pass the Stress Test With Flying Colors

The good news is that the tides have since turned, as it’s likely that B of A will come out much closer to the top of the list this year. Among other accomplishments, it’s now the best capitalized of the four megabanks, with a Tier 1 common capital ratio under the more stringent and yet to be implemented Basel III standards of 9.25% — JPMorgan and Citigroup’s come in at 8.7%, and Wells Fargo’s at 8.2%. Additionally, as you can see below, it’s dramatically improved its Basel I capital base on an absolute level as well.

What this chart shows us is that B of A had far more excess capital at the end of the third quarter last year (i.e., the numbers that were submitted for this year’s stress test) than it did at the same time in 2011. To point out only the most significant, it grew its excess Basel I Tier 1 common capital by a staggering $27 billion, from 8.65% of risk-weighted assets all the way up to 11.41%. In addition, and equally notable, the bank reduced its risk-weighted assets across the board, as evidenced by the declines in mandatory capital levels illustrated by the darker portions of the chart above. To say that this has been an accomplishment doesn’t do it justice.

At the end of the day, of course, anything can happen. But given the dramatic increase in capital beyond regulatory requirements — that is, the very thing the stress tests measure — I believe it’s safe to say that the likelihood B of A will fail on Thursday is slim to none. The more interesting question, in turn, is whether it will be given the go-ahead to up its dividend payout. For the answer to that, however, we’ll have to wait until next week.

The article B of A Will Pass the Stress Test With Flying Colors originally appeared on Fool.com and is written by John Maxfield.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

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