It’s been an ugly few months for Bank of America.
The stock has been dropping steadily through 2011, with July particularly bad. It nosedived this morning on news that the bank may “may have to build its capital cushion by $50 billion… as mortgage losses drain funds,” Bloomberg reported.
The stock is hovering around $9.60 right now.
That means that CEO Brian Moynihan’s promise to increase dividends will probably also be withdrawn, causing more discontent among shareholders who are already being warned to prepare for some ugly writedowns when BofA reports Q2 earnings tomorrow.
That $8.5 billion settlement with investors in June wasn’t the only mortage-related bad news from last quarter.
In the second quarter alone, “expenses tied to soured home loans may total $20.4 billion… pulling the bank further from capital ratios demanded under new international standards,” Bloomberg reported. “The gap may equal 2.75 per cent of risk-weighted assets starting in 2013 — at about $18 billion for each percentage point — crimping Moynihan’s ability to raise dividends and repurchase shares.”
One of this issues that Moynihan misjudged is the capital surcharge laid down by the Basel Committee.
According to Bloomberg,
Under rules prepared by the Basel Committee on Banking Supervision, Moynihan has to achieve a 9.5 per cent ratio of capital to risk-weighted assets between 2013 and 2019. That’s based on a 7 per cent minimum and a 2.5 per cent surcharge imposed by regulators…
Moynihan’s task was complicated after he underestimated how big the capital surcharge would be. The bank counted on 1 percentage point… The 2.5 per cent announced last month means an extra $27 billion burden.