Bank of America to suspend previously announced capital plans

CNBC With Reuters
BofA's big math error

Bank of America revised its previously announced regulatory capital ratios downward and suspended its share buyback, the company said Monday.

The revision was due to an incorrect adjustment related to its 2009 acquisition of Merrill Lynch. Sources told CNBC the errors were discovered in the last few days in the process of preparing the bank's quarterly report.

"As a result, the company is making the following adjustments to the previously announced estimated preliminary capital ratios for the first quarter ended March 31, 2014: the estimated Basel 3 Standardized transition common equity tier 1 capital ratio was revised to 11.8 percent, down 5 basis points; the estimated tier 1 capital ratio was revised to 11.9 percent, down 21 basis points; the estimated total capital ratio was revised to 14.8 percent, down 21 basis points; and the estimated tier 1 leverage ratio was revised to 7.4 percent, down 12 basis points," the company said.

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BofA said it would suspend its $4 billion stock buyback program and the planned increase in its quarterly dividend after the miscalculation. The bank had planned to raise its quarterly dividend to 5 cents a share from 1 cent a share.

The bank agreed to buy Merrill Lynch for about $50 billion on Sept. 14, 2008—the day before Lehman Brothers Holdings Inc went bankrupt—in a hurried deal that won praise for former CEO Ken Lewis at the time and probably prevented Merrill's demise.

BofA said it discovered the miscalculation after it released its first-quarter results on April 16. The bank is required to resubmit its capital plan within 30 days.

The reduction in regulatory capital and ratios will have no impact on the company's historical consolidated financial statements or shareholders' equity, BofA said.

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The U.S. Federal Reserve said on Monday Bank of America will have to redo a capital plan it had submitted as part of the Fed's annual stress tests, and that it told the bank to suspend any raises in shareholder capital distribution.

Mike Mayo selling Bank of America

Bank of America had disclosed it had incorrectly reported data used in the calculation of regulatory capital ratios, and submitted those as inputs for the stress tests, the Fed said.

The bank had to resubmit its capital plan within 30 days, and correct the errors, but the Fed said it could still extend that period.

Bank of America suspends buyback

"Until receiving notice that the Federal Reserve has not objected to the new capital plan, Bank of America will not be able to increase its capital distributions, including those increases approved during the (stress tests)," the Fed said.

It is unclear if the bank's adjustments would push bank to fail "stressed scenarios." The bank said it believes its adjusted levels are still compliant with Basel III.

Bank of America shares were at $15.23 in early trading on the New York Stock Exchange. Up to Friday's close, the stock had barely budged since the start of the year. (Click here for the latest quote.) The KBW bank index slipped about 1.7 percent in the same period.

CNBC with Reuters