8-KOther Events

BANK OF AMERICA CORP /DE/ 8-K Report, Corporate Update (Apr 13, 2016)

Filed April 13, 2016For 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 13, 2016, to report that U.S. regulators (the Federal Reserve and FDIC) deemed its July 1, 2015, resolution plan, or 'living will,' as not credible. While acknowledging BAC's efforts to improve resolvability, the agencies identified specific deficiencies and shortcomings in the plan. BAC is required to submit a plan by October 1, 2016, detailing actions taken to address these issues, and must also address the shortcomings in its July 1, 2017, resolution plan submission. This development could have significant implications for BAC. Failure to adequately remedy the identified deficiencies could result in the imposition of stricter capital, leverage, or liquidity requirements, or restrictions on growth and operations. In a more severe scenario, if the deficiencies are not rectified within two years of such impositions, BAC might be compelled to divest or restructure certain businesses. Investors should monitor BAC's progress in addressing these regulatory concerns, as it could impact the company's strategic direction and operational flexibility.

Key Highlights

  • 1Bank of America's (BAC) 2015 resolution plan, submitted in July 2015, was deemed "not credible" by U.S. financial regulators (Federal Reserve and FDIC).
  • 2Regulators identified specific "deficiencies" and "shortcomings" in BAC's plan for an orderly resolution in bankruptcy.
  • 3BAC is mandated to provide a submission by October 1, 2016, outlining corrective actions for the deficiencies and reporting on progress for the shortcomings.
  • 4The July 1, 2017, resolution plan submission must fully address the identified shortcomings.
  • 5Potential penalties for failing to adequately remedy deficiencies include stricter capital, leverage, or liquidity requirements, and restrictions on growth, activities, or operations.
  • 6If deficiencies remain unaddressed for two years post-imposition of penalties, BAC could face mandatory divestiture or restructuring of businesses.

Frequently Asked Questions

A resolution plan, often called a 'living will,' is a document that large financial institutions must submit to regulators detailing how they could be safely resolved (e.g., liquidated or restructured) in the event of severe financial distress or bankruptcy, without causing systemic risk to the financial system or requiring a taxpayer bailout. It's a key requirement under the Dodd-Frank Act.

If the regulators jointly determine that BAC's subsequent submissions do not adequately address the identified deficiencies, they could impose more stringent capital, leverage, or liquidity requirements, or restrictions on the company's growth, activities, or operations. If these issues aren't resolved within two years, BAC could be forced to divest or restructure parts of its business.

Bank of America needs to submit its '2016 Submission' by October 1, 2016, explaining actions taken to remedy the identified deficiencies and reporting on progress to address the shortcomings. The full '2017 Plan' is due on July 1, 2017, and must address the identified shortcomings.

No, this filing does not indicate immediate financial trouble. It relates to a regulatory process requiring large financial institutions to plan for hypothetical scenarios of severe distress. While the regulators found the plan not credible, they acknowledged BAC's efforts and provided specific areas for improvement, along with a clear timeline for remediation. The potential consequences are for future non-compliance, not for the current state of the company.