Fed rejects Bank of America’s dividend increase

NEW YORK – It was one more blow for Bank of America: the Federal Reserve didn’t allow the nation’s largest bank to increase its dividends.

The decision by the Fed makes Bank of America Corp. the only one of the four largest U.S. banks that wasn’t able to raise its dividend, something shareholders have been clamoring for.

The Fed’s decision, which BofA disclosed in a regulatory filing Wednesday, also raised questions over whether the bank is strong enough to withstand another economic downturn.

For CEO Brian Moynihan, the Fed’s rejection was another setback in his 14-month tenure, which has been marked by a sharp increase in lawsuits, mounting losses from credit cards and decreased income from checking accounts. As recently as March 8, Moynihan promised shareholders they would likely see a dividend increase in the second half of the year.

“We have the capital. We have the brand, and now we’ve been building the balance sheet,” Moynihan said at a conference for investors.

Problem is, the Fed didn’t agree. Bank of America, along with the 19 largest banks in the country, was subject to a “stress test” in the first quarter. The Fed tested the banks’ balance sheet and other measures to see if they were strong enough to stand up to another economic downturn. Only banks that passed the test were allowed to increase dividends.

The Fed has now asked the Charlotte, N.C., bank to submit a revised plan, and it is unclear if it will be allowed to increase its dividend in the second half of the year.

“This is a reality check for Bank of America,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $3.2 billion in assets. “They have a lot of work in front of them.”