BoA officials reveal inaccurate disclosure of capital levels for annual stress tests
29 April 2014
One ''tiny little error'' has caused much embarrassment at both Bank of America (BAC) and the Federal Reserve when bank officials disclosed that capital levels had been incorrectly calculated for the annual stress tests.
The error apparently escaped notice of the Fed apparently until Bank of America notified them.
This slip-up resulted in the value of shares in Bank of America getting hammered 6 per cent and suspension of plans for a stock buyback and dividend increase.
Although the error had little impact on the lenders' capital ratios, the bank had had more than it share of troubles lately and they last thing it needed was having to make a public admission of a mistake to the Fed.
In the latest quarter, revenue at the bank declined 4 per cent and it additionally lost $514 million due to never ending legal costs.
Although this episode was embarrassing, the lender had overcome bigger problems during the past five years.
The mistake, had gone undetected for several years, and had resulted in the bank reporting recently $4 billion more capital than it actually had.
After it reported the error to the Federal Reserve, the regulator mandated that the bank suspend a share buyback and a planned increase in its quarterly dividend.
According to commentators, the disclosure of the accounting error would most likely raise questions over whether the nation's largest banks were too big and complicated to manage.
The error was also likey to raise questions over the quality of Bank of America's own accounting employees, who were supposed to present an accurate financial picture of the bank's global operations to the public and regulators each quarter.
The bank's audit committee, the board and PricewaterhouseCoopers, its external auditor, also failed to nail the error so long.
The New York Times quoted Mike Mayo, an analyst at CLSA as saying there were signs that controls were not as tight as they needed to be. He added, it was a bank and needed to get the numbers right.
In an interesting development, the rule that there are plans to change the rule that tripped up Bank of America.
Commentators say the Fed too would come under the spotlight.
''Bank of America must address the quantitative errors in its regulatory capital calculations as part of the resubmission and must undertake a review of its regulatory capital reporting to help ensure there are no further