It is time for “The Daily Dividend.”  By now it is well-known that Bank of America Corporation (NYSE: BAC) failed to win Federal Reserve approval to raise its dividend or repurchase stock.  The reasons may be many, and this entire mortgage put-back issue still hangs in the shadows even if a possible settlement may minimize the effect.  CEO Brian Moynihan issued his annual letter to Bank of America holders and the bank seems intent on hiking its dividend.

His  March 15 letter called for the bank to run on a fortress-style balance sheet, played down any new mergers and stuck by his commitment to raise the dividend and to resume share buybacks.

It is curious as to why Moynihan would allow a letter that was likely to be seen by all shareholders to be issued before regulators took action.  We know that Bank of America will eventually get to raise its dividend again.  The question is when.  Citigroup Inc. (NYSE: C) was allowed to pay a tiny dividend with a yield of less than 0.1% on a split-adjusted basis.

At issue is that BofA’s balance sheet has more unknown liabilities on the mortgage side of the equation back to the Countrywide days.  It is also above the 10% deposit ceiling and it truly is a ‘Too Big to Fail’ bank.  BofA is no JPMorgan Chase & Co. (NYSE: JPM) nor is it even a Wells Fargo & Co. (NYSE: WFC).  Those two banks are healthier and that is why they were allowed to boost their payouts.

Moynihan’s quote in the introduction to the annual report noted, “We also believe… this model will enable us to put in place a prudent capital management strategy in the near future that, pending regulatory approvals, includes a higher dividend and stock repurchases.”

When we see news like this we at least question what on earth management and the communications departments might have thought.  Perhaps this was simply a decision on formatting and printing as this was part of the annual report.

We’ll skip over being too critical and we won’t call anyone delusional on this one here because it feels and looks like the firm had already made its commitment to its annual report.  BofA will get to raise its dividend, but we do not feel that the Federal Reserve is going to allow a JPMorgan or Wells Fargo type of dividend hike.

Our guess is that 20% of the bank’s future income will be allowed to be used for dividends and share buybacks in late-2011 or in 2012 with more to follow in 2013 and 2014.  That is assuming that a recession or bank losses do not come back in and interrupt the return to a normalization of bank earnings and operations.

JON C. OGG

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