Citigroup Inc (C), Bank of America Corp (BAC): What a Stable Banking System Means for Your Banking Stock

Among other ways for Citigroup Inc (NYSE:C) and Bank of America Corp (NYSE:BAC) to cope with the proposed leverage ratio standards include suspension of their dividends. One consequence of the proposed regulations might include lower earnings potential for Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) as banks continue to raise internal capital. While banking stocks are not famous for their dividend yields, they still form part of the total returns.

Bank of America Corp (NYSE:BAC) offers a dividend yield of 0.31% on its quarterly dividend rate of $0.01 per common share. Citigroup Inc (NYSE:C) has a similar dividend rate and yields 0.08%, while Capital One Financial Corp. (NYSE:COF) offers a dividend yield of 1.9% on its dividend rate of $0.30 per common share. Since Capital One Financial Corp. (NYSE:COF) already meets the requirements, suspension of its dividend is highly unlikely.

Conclusion

Given the substantial increase in capital over the last few years, larger banks in the U.S. are expected to pursue balance sheet optimization to meet new leverage requirements. Further, it’s believed that banks will not cut their dividends and nor will they raise more capital to meet proposed requirements. That said, I believe the Fed will not introduce regulations that will be disadvantageous to the U.S. banks.

The article What a Stable Banking System Means for Your Banking Stock originally appeared on Fool.com and is written by Red Chip.

Red Chip has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Citigroup Inc (NYSE:C). Red is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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