Bank of America said it will repurchase up to $5 billion of common stock and redeem about $5.5 billion in preferred stock after it won Federal Reserve approval Thursday for its capital plan.
But the Charlotte bank said its quarterly dividend will stay at 1 cent, where it has remained since the aftermath of the financial crisis.
The Fed ruling, which allows Bank of America to return capital to shareholders, was part of a broader examination of the capital plans of 18 of the nation's biggest banks. The Fed approved the plans of 14, including Wells Fargo. It gave conditional approval to the plans of JPMorgan Chase & Co. and Goldman Sachs and objected to those of BB&T Corp. and Ally Financial.
The results follow last week's announcement of how major banks performed in the federal "stress tests," which gauge how lenders would fare in a severe economic downturn. Bank of America, Wells Fargo, BB&T and nearly all the rest of the nation's 18 largest banks passed the tests. Ally Financial did not.
The Fed's capital analysis released Thursday evaluates the stock and dividend plans the banks have submitted.
Bank of America CEO Brian Moynihan said Thursday the bank is well-positioned to return capital to shareholders.
"We have simplified our company, and we have more than adequate capital to support our strategic plans," Moynihan said in a statement. "We are well positioned to return excess capital to our shareholders. We believe buying back common shares is the best way to continue to drive value for our shareholders."
Since the downturn, Bank of America has asked the Fed only once, in 2011, for a dividend increase. The Fed rejected that request.
For shareholders, a buyback means fewer outstanding shares of the bank's stock. That, in effect, gives them a larger stake in the bank. A buyback could also lead to an increase in earnings per share if the bank's profits were to stay the same or increase.
Banking analysts had expected the Fed's approval of Bank of America's capital plan, noting that the bank has boosted its capital position.
"There's a fairly high degree of confidence that in 2013 they will begin to start returning a modest amount of capital to shareholders, as they have completed a fairly significant restructuring of the company," Todd Hagerman, an analyst with Sterne Agee & Leach, told the Observer.
Jeff Harte, an equity research principal for Sandler O'Neill & Partners, sounded a similar note: "In my mind, BofA's capital position is getting a lot better."
But Bank of America didn't perform as well as some of its peers in last week's stress test's measure of capital ratios.
Moreover, its 1-cent-per-share dividend is far below that of peer banks. JPMorgan Chase & Co.'s most recent dividend was 30 cents a share, while Wells Fargo's was 25 cents. Meanwhile, Bank of America's dividend hasn't budged for 17 straight quarters.
Wells Fargo, on Thursday, said its 2013 capital plan includes a proposed dividend of 30 cents per share for the second quarter of the year. Its board is set to vote on that plan in April. The bank is also proposing an increase in common stock repurchases in 2013 over 2012.
In after-hours trading Thursday, Bank of America shares stood at $12.48, up more than 3 percent from the market close. Wells Fargo was trading at $37.19, up 0.6 percent from the close.
Roberts: 704-358-5248; Twitter: @DeonERoberts
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