And last but not least, during the second stage of Moynihan’s strategy, he said that the bank plans on returning “all earnings to investors in dividends or share buybacks.” The normally reticent CEO was particularly keen to note that, “We need to get back most of the shares we issued in the crisis that caused all the dilution.” What he’s referring to here is the fact that between the end of 2007 and now, the bank’s outstanding share count increased by a factor of 2.5.
Moynihan’s decision to use buybacks as opposed to dividend aside, however, it’s important to note the magnitude and likely impact of the permission. There are a few different ways to put this into context. If the $5 billion buyback were instead committed to dividends, for instance, that would equate to a roughly $0.50 per share each year in payouts, including the current $0.04 that it pays out now. At Thursday’s closing price of $12.11 per share, that translates into a not insignificant 4.1% yield. And speaking just in terms of buybacks, at that same price, the $5 billion program would allow B of A to repurchase 3.82% of its outstanding stock. In addition, the $5.5 billion committed to redeeming preferred shares will save the bank upwards of $470 million a year in payments thereon.
At the end of the day, in turn, while some shareholders may be disappointed with B of A’s decision to forgo a dividend increase in lieu of a repurchase program, the performance of the bank’s shares in after-hours trading last night should help cushion the blow. Unlike Goldman Sachs and JPMorgan Chase & Co. (NYSE:JPM), both of which are seeing their shares fall, B of A’s shot up by more than 4% at certain points. Consequently, at least for the time being, the powers that be are clearly content with the move.
The article Proof That Ben Bernanke Loves Bank of America originally appeared on Fool.com and is written by John Maxfield.
John Maxfield owns shares of Bank of America. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo.
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