BAC Dividend Hike on Hold After Stress Test Shows "Weakness"

BAC dividendResults of the U.S. Federal Reserve's so-called stress test were released Wednesday - and Bank of America Corp. (NYSE: BAC) passed only provisionally. As such, a long-awaited boost to the BAC dividend remains on hold.

In total, 28 U.S.-based banks passed the Fed's annual regulatory test aimed at assessing whether they can survive a financial and economic catastrophe.

Failing were the American units of German banking goliath Deutsche Bank AG (NYSE: DB) and Spain's Banco Santander SA (NYSE ADR: SAN).

The Fed said Bank of America, the nation's second-largest bank by assets after JPMorgan Chase & Co (NYSE: JPM), showed some weakness in its internal controls.

Those weaknesses were limited enough that the Fed avoided flunking BofA. Still, BofA could fail later this year if it doesn't fix "deficiencies" the Fed identified.

The conditional pass marked BofA's third stress test snafu in five years and stoked fresh questions about its ability to comply with new regulations targeted at making the financial system safer.

Here's a look at BofA's past stress test misses - plus 10 notable dividend hikes and share buybacks announced by banks that fared better Wednesday...

Bank of America's History of Stress Test Blunders

In 2011, the Fed denied BofA's request to modestly increase its dividend.

Last year, BofA passed the stress test - initially. The Charlotte, N.C.-based bank got the Fed's okay to make shareholder payouts and implement a share buyback.

A few weeks later, however, BofA discovered errors that led it to overstate its capital by $4 billion. The blunder prompted the Fed to tell BofA to suspend its share buybacks and put a stop to a planned BAC dividend increase.

BofA shares tumbled more than 5% to $15.13 on the news last April.

This time around, BofA shares slipped just 0.53% to $16.02 midday Thursday. That's because BofA was approved to deliver some good news for investors...

BAC Dividend Well Below That of Peers

BofA received Fed approval to reward shareholders with a $4 billion stock buyback.

But investors no doubt would have preferred a dividend boost. Shareholders have been clamoring for a bigger BAC dividend for more than five years.

BofA presently pays a quarterly distribution of $0.05 per share for a 1.25% yield. That's well below most of its peers.

It's also a far cry from the $0.64 quarterly dividend BofA paid out in mid-2008. Like its rivals, BofA was forced to slash its payout during the financial crisis.

The Fed's cautious response Wednesday to BofA is a reflection of the bank's struggles over the last year. BofA shelled out $16.65 billion in a settlement with the Justice Department over mortgage securities. The company's net profit plummeted 58% in 2014.

Rivals faring better moved quickly Wednesday to reward shareholders. Nineteen banks boosted their dividends, according to FactSet. The cumulative amount of share buybacks was a hefty $49.3 billion.

Following are 10 notable dividend hikes and share buybacks announced Wednesday.

Big Banks Boosting Buybacks and Payouts

Citigroup Inc. (NYSE: C), which failed the Fed's test last year, will increase its quarterly dividend from a penny a share to a $0.05. Citi also announced a $7.8 billion stock buyback program. Citi's dividend hike and share buyback were the largest announced Wednesday.

JPMorgan Chase & Co. (NYSE: JMP) will juice its quarterly payout $0.04 to $0.44 a share. It will also buy back $6.4 billion of common stock.

Morgan Stanley (NYSE: MS) is raising its dividend 50% to $0.15 per share. It will also buy back $3.1 million of its stock.

Wells Fargo & Co. (NYSE: WFC) will hike its quarterly distribution 7% to $0.375 a share.

Goldman Sachs Group Inc. (NYSE: GS) is goosing its quarterly dividend a nickel to $0.65 per share.

American Express Co. (NYSE: AXP) will boost its quarterly dividend $0.03 to $0.20 per share. The company will also repurchase $6.6 billion of its common stock.

State Street Corp. (NYSE: STT) is sweetening its quarterly dividend $0.04 to $0.34 a share. The company will also buy back $1.8 billion of its stock.

BB&T Corp. (NYSE: BBT) will boost its quarterly dividend $0.03, or 12%, to $0.27 per share.

Capital One Financial Corp. (NYSE: COF) will increase its dividend a dime to $0.40 per share. It will also buy back up to $3.125 billion of its stock.

Discover Financial Services (NYSE: DFS) is raising its dividend $0.04 to $0.28 per share. It will also repurchase up to $2.2 billion of its common stock.

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