8-KOther EventsExhibits & Filings

BANK OF AMERICA CORP /DE/ 8-K Report, Corporate Update (Apr 28, 2014)

Filed April 28, 2014For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

Bank of America Corporation (BAC) filed an 8-K on April 28, 2014, to disclose two significant events impacting its regulatory capital reporting. First, the company announced the suspension of its planned 2014 capital actions and will re-submit its Comprehensive Capital Analysis and Review (CCAR) to the Federal Reserve. The timing of the completion of this review and any potential revised capital actions remains uncertain. Second, BAC identified an error in its previously released preliminary first-quarter 2014 regulatory capital ratios. An incorrect adjustment related to the fair value option for structured notes acquired in the Merrill Lynch acquisition led to an overstatement of reported regulatory capital. While GAAP financial statements remain unaffected, revised preliminary Basel 3 ratios show a reduction in key capital metrics, though BAC emphasizes that these revised ratios still exceed regulatory minimums, including anticipated future requirements.

Key Highlights

  • 1BAC is suspending previously announced 2014 capital actions and will re-submit its CCAR to the Federal Reserve.
  • 2The timing for the Federal Reserve's review and approval of revised capital actions is uncertain.
  • 3An error was discovered in the calculation of preliminary Q1 2014 regulatory capital ratios.
  • 4The error involved an incorrect adjustment for the fair value option of structured notes acquired in the Merrill Lynch acquisition.
  • 5This error led to an overstatement of preliminary regulatory capital amounts and ratios.
  • 6Revised Basel 3 Standardized transition ratios for Q1 2014 show decreases in Common Equity Tier 1 (11.8%), Tier 1 Capital (11.9%), Total Capital (14.8%), and Tier 1 Leverage (7.4%).
  • 7Revised Basel 3 fully phased-in estimates also show reductions but remain above projected minimums.

Frequently Asked Questions

The suspension of planned capital actions, such as potential dividend increases or share buybacks, means that these capital distributions to shareholders will be delayed. The need to re-submit the CCAR to the Federal Reserve suggests potential concerns from regulators about BAC's capital planning or stress test results. Investors should anticipate a period of uncertainty regarding the timing and magnitude of future capital returns until the CCAR process is successfully completed and approved.

While the restatement involved an overstatement of preliminary ratios, the revised figures for Q1 2014, including the Common Equity Tier 1 ratio of 11.8% under the Basel 3 Standardized transition basis, remain above the company's stated minimum requirements. The fully phased-in estimates also exceed future minimums. The error's cause was specific to accounting for certain structured notes from the Merrill Lynch acquisition. Investors should monitor future filings for confirmation that these ratios are stable and that the underlying issue has been fully resolved.

No, the filing explicitly states that Bank of America's historical consolidated financial statements, including shareholders' equity, for prior periods were properly stated in accordance with U.S. GAAP. The consolidated financial statements for the three months ended March 31, 2014, also remain unchanged from those initially announced. The error pertains specifically to the calculation and reporting of *regulatory* capital ratios, not the company's overall financial accounting.

The fact that the revised fully phased-in Basel 3 ratios (e.g., Common Equity Tier 1 ratio of 9.0% under Standardized approach) exceed the Corporation's estimated 2019 minimum of 8.5% (including buffers) indicates a strong capital position relative to future regulatory expectations. This suggests that even with the adjustment, BAC is likely to meet stricter capital requirements when they are fully implemented, providing a degree of confidence in its long-term capital adequacy.