The next three months will be critical for Bank of America (NYSE:BAC). Among other things, investors will learn whether the nation's second largest bank by assets passes its stress test, gets approval to return capital to shareholders, and has a critical legal settlement approved by a judge in Manhattan. With this in mind, here are four critical dates for investors to keep their eyes on.
This is the day the Federal Reserve releases the results of the 2013 stress tests. These tests are designed to determine whether the nation's largest banks have enough capital to withstand the impact of severely adverse economic scenarios along the lines of the 2008-09 financial crisis. The scenarios this year include a 6.1% decline in U.S. GDP, an unemployment rate of 12.1%, and 33% and 60% drops in equities in China and Spain, respectively.
This is the day the Federal Reserve releases the results of a second round of tests known as the Comprehensive Capital Analysis and Review, or CCAR. Working in conjunction with the stress test, this second layer determines whether or not stress-tested banks can increase their dividends and/or repurchase shares.
As my colleague David Hanson discussed earlier today, after the Fed rejected B of A's dividend-increase proposal in late 2010, it decided against asking for one last year. In the meantime, while both JPMorgan and Wells Fargo have steadily ratcheted up their own shareholder payouts, B of A took the opportunity to accumulate the best Basel III Tier 1 common capital ratio among its too-big-to-fail brethren.
It's for these reasons, in turn, that many analysts, myself included, believe the bank has not only requested a modest capital distribution this time around, but that the request will likely be granted.
This is the day B of A reports its financial results for the first quarter of 2013. In the most recent quarter ended Dec. 31, the bank reported a paltry $700 million in net income, or less than half of the figure from the same quarter in 2011. Weighing it down were $4.7 billion in fees and expenses related to legal settlements and ongoing challenges dating back to the financial crisis.
This time around, investors will be watching to see how B of A is progressing in terms of increasing mortgage originations, decreasing expenses under its Project New BAC program, and divesting itself of the now-cumbersome mortgage-servicing rights.
This could end up being the most important day of the year for B of A, as this is the day that a New York court is set to hear arguments about whether to approve an $8.5 billion legal settlement that the bank's ill-reputed Countrywide division entered into with Bank of New York Mellon (NYSE:BK) and 22 institutional investors in Countrywide MBSes, including bond giants BlackRock (NYSE:BLK) and Pimco.
There's been significant speculation of late that this settlement may be threatened. As I discussed yesterday, the gist of the argument is that B of A, BONY, and the 22 institutional investors are not adequately representing the other investors in the MBSes at issue.
At present, B of A has already set aside the $8.5 billion it needs to satisfy the agreement. If the settlement is rejected by the court, however, the bank's liability could purportedly grow to as much as $30 billion. In addition, it'd set a damning precedent for B of A in analogous legal challenges that it's fighting in other courts.
To read more about this settlement, as well as the other legal issues that B of A faces, click here to read an in-depth series on B of A's ongoing legal liability.
John Maxfield owns shares of Bank of America. The Motley Fool recommends BlackRock and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.