Bank of America Corporation has announced a downward revision to the company’s previously disclosed regulatory capital amounts and ratios due to an incorrect adjustment related to the treatment of certain structured notes assumed in the Merrill Lynch & Co., Inc. acquisition in 2009.
The reduction in the regulatory capital amounts and ratios has no impact on the company’s historical consolidated financial statements or shareholders’ equity, which were properly stated in accordance with accounting principles generally accepted in the United States of America (GAAP).
On April 16, the company issued a press release announcing preliminary financial results for the quarter ended March 31, 2014. As part of such release, the company included estimated preliminary Basel 3 capital amounts and ratios as well as Basel 1 capital amounts and ratios for 2013.
Subsequent to the press release, the company discovered an incorrect adjustment being applied in the determination of regulatory capital related to the application of the fair value option to certain legacy Merrill Lynch structured notes resulting in an overstatement of its regulatory capital amounts and ratios.
The company correctly adjusted for the cumulative unrealized change on structured notes accounted for under the fair value option, but it incorrectly adjusted for cumulative realized losses on Merrill Lynch issued structured notes that had matured or were redeemed by the company subsequent to the date of the Merrill Lynch acquisition.
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%, down 5 basis points; the estimated tier 1 capital ratio was revised to 11.9%, down 21 basis points; the estimated total capital ratio was revised to 14.8%, down 21 basis points; and the estimated tier 1 leverage ratio was revised to 7.4%, down 12 basis points.
Although not required by GAAP, the company has in prior periods, including the first quarter of 2014, disclosed estimates for its Basel 3 fully phased-in common equity tier 1 ratios in quarterly earnings releases.
On a fully phased-in basis, Bank of America estimates that for the first quarter ended March 31, 2014, the common equity tier 1 capital ratio under the Basel 3 Standardized approach decreased 27 basis points to 9% from the previously reported estimated ratio, and the estimate for the common equity tier 1 capital ratio under the Basel 3 Advanced approaches decreased 29 basis points to 9.6% from the previously reported estimated ratio.
These ratios exceed the company’s estimated 2019 minimum common equity tier 1 ratio requirement, including buffers, of 8.5%.
A schedule of the revised regulatory capital amounts and ratios for the quarter ended March 31, 2014 and certain prior periods is included in a Form 8-K filed today with the Securities and Exchange Commission.
Resubmission of Data Templates and Requested Capital Actions in 2014 Capital Plan
Bank of America promptly notified the Federal Reserve Board (FRB) of the revisions and has been in close communication with the FRB regarding the effects of the revisions. The FRB has directed the company to resubmit its data templates and requested capital actions contained in the 2014 Comprehensive Capital Analysis and Review (CCAR).
As part of this process, Bank of America will engage a third party to review processes and the materials prior to resubmission.
At the FRB’s request, the company is suspending its previously announced 2014 capital actions, including the US$4bn common stock repurchase authorization and the planned increase in the quarterly common stock dividend from $0.01 per common share to $0.05 per share.
Subject to completion of the third-party review and approval from the Bank of America Board of Directors, the company will expeditiously resubmit its data templates and requested capital actions in the 2014 CCAR plan for FRB approval.
The company expects the requested capital actions to be contained in the revised CCAR submission will be less than the company’s previously announced 2014 capital actions.