NEW YORK (CNNMoney) — So much for that dividend hike and stock buyback for Bank of America shareholders.
The Federal Reserve required BofA on Monday to ditch its plans to return cash to shareholders after the bank said it incorrectly reported capital ratios in recent stress tests.
The second largest U.S. bank by assets said the error was caused by an “incorrect adjustment” related to the treatment of certain structured notes assumed when it acquired Merrill Lynch in 2009.
It’s the latest in a series of regulatory and legal setbacks for the bank’s shareholders after it acquired mortgage lender Countrywide and Merrill Lynch during the financial crisis.
The Fed is requiring the BofA to resubmit its data templates and new capital action plans. BofA said it has engaged an unspecified third party to “review processes and the materials prior to resubmission.”
As BofA tries to come up with a new game plan, the Fed ordered the bank to suspend its plans to buy back $4 billion of common stock and boost its dividend from 1 cent a share to 5 cents.
BofA said it will “expeditiously” resubmit its data templates and capital plans to the Fed, but warned it anticipates the new dividend and buyback plans to be less than previously announced.
The bank noted its downward revision of capital amounts and ratios does not impact its historical financial statements or shareholder equity.
Still, investors reacted negatively to the news, driving BofA’s shares 4% lower in premarket action Monday morning, and the stock was down over 5% in early trading after the opening bell.
While the stress test process has been credited with restoring faith in big banks, some companies have struggled to convince regulators to approve capital plans. There are also questions about why the Fed process didn’t catch the error.
Earlier this year, Citigroup suffered an embarrassment by failing the stress test for the second time in three years. Citi was the only mega U.S. bank to fail this year.
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