Despite positive news on the job front this morning, there’s palatable angst underlying shares of the banks today, as investors wait to learn which of the nation’s 18 largest lenders will be allowed by the Federal Reserve to increase their quarterly dividend payouts and/or share buyback programs. With the announcement scheduled for 4:30 p.m. ET, shares of Bank of America Corp (NYSE:BAC) are up by $0.09, or 0.75%, in afternoon trading.
Investors breathed a collective sigh of relief last week after the Fed announced that 17 of the 18 banks examined via the now-annual stress test, passed it — click here to access our extensive coverage of the stress tests. The clear standouts were the regional lenders given their limited exposure to the risky world of investment banking. To name just one example, U.S. Bancorp (NYSE:USB) saw its tier 1 common capital ratio fall by only 70 basis points down to 8.3%, or well able the 5% minimum, after running the Fed’s “severely adverse” economic scenario. By comparison, JPMorgan Chase & Co. (NYSE:JPM)‘s and Citigroup Inc. (NYSE:C)‘s fell by 410 bps and 440 bps, respectively. And for its part, B of A’s ratio fell by 460 bps down to 6.8%.
While some banks have already announced what they’ve asked for from the Fed in this regard, Bank of America Corp (NYSE:BAC) has stayed quiet. Citigroup Inc. (NYSE:C), for example, asked regulators for permission to buyback only enough stock to counter dilution from routine share issuances stemming from its compensation scheme. Meanwhile, JPMorgan’s buyback request was purportedly sliced in half compared to its $15 billion program last year, though analysts are expecting the bank to raise its quarterly dividend by $0.06 per share. And rounding out the top four banks, sans Bank of America Corp (NYSE:BAC), at the end of last year, the CEO of Wells Fargo & Co (NYSE:WFC)‘s announced that he would move to increase the amount that it distributes to shareholders. Prior to the crisis, the nation’s largest mortgage lender paid out anywhere between 35% and 50% of its earnings via dividends. Since then, that figure has only just reascended to the high-20% range.
Other than saying that a dividend increase is “on the table,” Bank of America Corp (NYSE:BAC)’s CEO Brian Moynihan has otherwise stayed quiet. His reticence in this regard is largely attributable to the public and humiliating denial of the bank’s request in 2011 — something many people believe has been his biggest mistake since taking over at the beginning of 2010.
That being said, Bank of America Corp (NYSE:BAC) stands a good chance of being able to increase its now-nominal quarterly payout of $0.01 per share. As I discussed here, for a bank to obtain approval, according to the Fed, it must demonstrate the “ability to maintain capital above each minimum regulatory capital ratio and above a tier 1 common ratio of 5 percent on a pro forma basis under expected and stressful conditions throughout the planning horizon.”
So, how does Bank of America Corp (NYSE:BAC) measure up? Pretty good I’d say. At the end of the third quarter, its tier 1 common capital ratio was an impressive 11.4%, or more than twice the requisite minimum. And even after the extreme scenarios envisioned by the stress test, it fell to only 6.8%, or 180 bps higher than 5% called for. With this in mind, while I’ve certainly been wrong before, it seems clear that Bank of America Corp (NYSE:BAC), at the very least, has a great shot of attaining approval this go-around. And it’s this feeling, in turn, that’s fueling the bank’s share price today.
The article Why Bank of America Is Higher Amid Light Volume 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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