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(Reuters) - Bank of America Corp said on Monday it will suspend a planned increase in its quarterly dividend as well as its latest stock buyback program because it miscalculated a measure of the capital on its books.
The second-largest U.S. bank said because of the mistake it had to reduce by $4 billion the capital level that regulators watch. The figure equals about three-quarters of the extra money that regulators had approved for returning to shareholders over the next four quarters.
The Federal Reserve ordered Bank of America to suspend and resubmit its 2014 capital plans within 30 days. Its shares fell 4.7 percent at midday.
The Fed said the bank must correct the errors in its regulatory capital calculations and ensure no further reporting problems. (link.reuters.com/zef88v)
Bank of America said it expects its revised request for buybacks and dividends to be lower than the one announced in March. The Fed had approved buying back $4 billion of BofA shares and increasing the dividend by more than $1.5 billion a year, or to 5 cents per share from 1 cent quarterly.
That would mark the second time the bank has scaled back its proposed capital plan. Earlier this year the Fed ordered Bank of America to tweak its request because the original version would have left it with inadequate capital to withstand a hypothetical economic crisis. (link.reuters.com/byf88v)
As part of the Dodd-Frank financial reform law, banks are required to submit proposed changes to dividends or share repurchases each year.
The bank identified the errors over the past week as it prepared a quarterly filing with the U.S. Securities and Exchange Commission, a person familiar with the matter said. It notified the Fed and worked through the weekend so it could announce the adjustments on Monday, the source said.
The problems were related to how it calculated the value of structured notes that investment bank and brokerage Merrill Lynch had issued. Bank of America agreed to buy Merrill Lynch hours before Lehman Brothers filed for bankruptcy in September 2008 and inherited the notes.
The reduction in regulatory capital and capital ratios will not affect the company's historical consolidated financial statements or shareholders' equity, it said.
The bank also said a third party will review its processes before it resubmits its capital plan to the Fed.
Former Chief Executive Officer Ken Lewis won praise for the Merrill deal, which was seen as preventing the brokerage's demise.
Bank of America shares dropped 75 cents to $15.20 on the New York Stock Exchange. Until Friday's close, the stock had barely budged since the start of the year. The KBW bank index slipped about 1.7 percent in the same period.
Reporting by Peter Rudegeair in New York and Tanya Agrawal in Bangalore; Editing by Don Sebastian, Ted Kerr and Jeffrey Benkoe