Bank of America Corp. (BAC:US) needs to show a steady stream of profit before satisfying demands for a higher dividend, Chief Executive Officer Brian T. Moynihan said.
“The No. 1 issue is to get the recurring earnings stream back where it should be,” and then address the mix of dividends and stock buybacks, Moynihan said today at the annual shareholders meeting in Charlotte, North Carolina, where the company is based.
Bank of America, swamped by costs tied to defective mortgages, has posted only four quarterly profit (BAC:US) increases since Moynihan became CEO in 2010. Investors pressed him today on when the dividend would be increased from its current 1 cent per quarter. The payout was reduced to that amount during the financial crisis when the bank obtained a $45 billion U.S. bailout, which has been repaid.
“They’ve probably got 20 cents per quarter in earnings that’s recurring right now, and that’s not enough,” said Nancy Bush, an analyst at SNL Financial LC, a bank research firm in Charlottesville, Virginia. “He has to get to a point where interest rates normalize and you get more certainty with mortgages before he declares a significant dividend.”
Moynihan has made restoring shareholder payouts (BAC:US) a priority during his tenure. He came under fire in 2011 after fanning investor expectations for a “modest” dividend increase, only to have the Federal Reserve reject his capital plan. This year, he won Fed support to buy back as much as $5 billion in stock.
“Right now, the best course for the company is to buy back the stock,” Moynihan told an investor today who implored him to increase the dividend.
Bad mortgages and related legal costs were the main drags on first-quarter results, and Moynihan said his job was to get those “down to zero.” He heard objections from shareholders (BAC:US) about the bank’s policy on climate change and loans to coal companies because of pollution and environmental damage, and fielded pleas to help distressed borrowers keep their homes. One speaker said the bank is still pursuing foreclosures while loan modifications are in progress.
“With interminable delays in processing loan modifications, dual-tracking, and generally giving homeowners the runaround, the experience they’ve had is Kafkaesque,” said Josh Zinner, co-director of New York-based Neighborhood Economic Development Advocacy Project. “Unfortunately, many of the abuses seem to be concentrated in communities of color.”
Onstage, Moynihan was flanked by a pair of large screens displaying a countdown of how much time -- two minutes -- that most investors had to speak. Similar to last year, employees (BAC:US) and investors both wore badges identifying them as shareholders, though the badges were of different colors.
Bank of America is the second-largest U.S. lender by assets after JPMorgan Chase & Co. The stock rose (BAC:US) 11 percent this year through yesterday to $12.90, on top of its 109 percent advance in 2012, when Bank of America led the Dow Jones Industrial Average. The shares added 12 cents to $13.02 as of 2:16 p.m. in New York.
The company’s traders posted gains every business day during the first quarter, generating more than $25 million of revenue on 97 percent of trading days while reducing the amount of risk taken, or value-at-risk, according to a quarterly regulatory filing.
“If you look at our VAR, and our risk-taking, we’re keeping it balanced relative to the rest of the company,” Moynihan, 53, said in an April 17 conference call. “We may not roar as much as some people might, because this is one of the many businesses we have and we drive it for the benefit of the investing customers and also the issuing customers.”
While Bank of America avoided losses, its trading revenue slumped 20 percent, a drop surpassed only by Morgan Stanley among the five largest Wall Street banks.
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