Brian T Moynihan, who vowed that Bank of America Corp. (BAC)’s strength would never be questioned again when he took the top job, found himself bombarded with queries yesterday about whether the bank needs to raise more capital.
The answer is no, Moynihan told analysts during a conference call after reporting an $8.83 billion loss at the bank where he’s chief executive officer. On a day when stock markets rallied and rival Wells Fargo & Co. (WFC) posted its biggest gain since last year, Bank of America slumped 1.5 percent as falling revenue fed doubt among analysts.
“Nobody believes their theory that they don’t need to raise capital,” said Michael Shemi, a director at Christofferson, Robb & Co., a New York-based firm with $1.4 billion in assets that invests in credit markets.
“There’s clearly a credibility gap with management. If you were to listen to their end-of-2010 earnings call, the sentiment was around the dividend and returning money to shareholders. All that’s gone out the window.”
Bank of America slid 15 cents to $9.57 in New York Stock Exchange composite trading, extending its drop this year to 28 percent — the worst in the 24-company KBW Bank Index. The record loss included $14 billion in costs tied to resolving claims from investors or insurers who said they were duped into buying or backing defective mortgages.
The bank may face more costs tied to bad mortgages as it reimburses investors for loans that went sour and settles state and federal probes. Mike Mayo of Credit Agricole Securities USA asked Moynihan how much “conviction” he has that the bank won’t need to raise capital if it suffers a ratings cut or losses tied to the European debt crisis.
Dividend Dispute
“You were considering the possibility of a dividend increase by the end of the year, and now several investors asked about the idea of a potential capital raise,” Mayo said. “We’ve gone full circle here.”
Moynihan, 51, said the bank reduced reliance on short-term funding and is monitoring risks to its investments.
“The level of conviction is, given the economic scenarios which are moving along, but at a very slow pace, is that we don’t see it,” Moynihan told Mayo.
Chief Financial Officer Bruce Thompson said it’s “not helpful to look backward” at management decisions and that the second-quarter mortgage charges, first disclosed on June 29, presented a new opportunity to guide analysts and investors.
“What we came out with on the 29th was to set people with expectations that we’re comfortable with,” Thompson said in a telephone interview. “We set out some different guidance at that point, and as we wrap up things for the second quarter, we were at the top end of the range that we’d given.”
JPMorgan, Citigroup
Doubt is reflected in the bank’s stock price, which trades at less than half of book value, compared with a price-to-book ratio of 1.2 for Wells Fargo and 0.9 for JPMorgan Chase & Co. (JPM)
JPMorgan, ranked second by assets, said last week that profit rose 13 percent to $5.43 billion as revenue climbed on gains from underwriting stocks and bonds. Citigroup Inc. (C), the third-biggest, said profit surged 24 percent to $3.34 billion on higher investment-banking fees.
Bank of America told investors in its annual report that, subject to approval by regulators, it intended to raise its dividend in 2011. The payout was cut to a penny a share in 2009 during the depths of the financial crisis. Moynihan said in December 2010, “I don’t see anything that would stop us,” only to have the Federal Reserve block the request. The bank said it would resubmit its plan, then said an increase might be deferred until at least next year.
