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BofA "Finds" Capital Calculation Math Error, Halts Capital Action Plan, $4 Billion Buyback

Tyler Durden's picture




 

Just weeks after the Fed signed off on CCAR and ackowledged how great the US banking system is, Bank of America (after being slapped with another $13bn RMBS suit demand) has ackowledged things are not quite as risy as they appeared...

  • BOFA HAD INCORRECT ADJUSTMENT ON TREATMENT OF SOME NOTES
  • BOFA SUSPENDS CAPITAL ACTION PLAN ON CHANGE IN CAPITAL RATIOS
  • BAC SEES REVISED CAPITAL ACTIONS LESS THAN PREVIOUSLY ANNOUNCED
  • BAC WILL ENGAGE THIRD PARTY TO REVIEW PROCESSES

So no buyback boost... no dividend boost... The question now is - how do we (or The Fed) trust any of the numbers?

Subsequent to the press release, the Corporation discovered an incorrect adjustment being applied in the determination of regulatory capital related to the treatment of the fair value option adjustment for structured notes assumed in the Merrill Lynch & Co, Inc. acquisition in 2009, resulting in an overstatement of regulatory capital amounts and ratios.

  • BAC: MARCH 31 PRELIM TIER 1 LEVERAGE RATIO 7.6%, REVISED 7.4%
  • BAC: BASEL 3 EQUITY TIER 1 9.0% FULLY PHASED, DOWN 27 BP
  • BAC CUTS 1Q EST. PRELIM TIER 1 CAPITAL 21 BASIS PTS TO 11.9%

Oops!

 

From the release:

Bank of America Corporation today announced a downward revision to the company’s previously disclosed regulatory capital amounts and ratios due to an incorrect adjustment related to the treatment of certain structured notes assumed in the Merrill Lynch & Co., Inc. acquisition in 2009. The reduction in the regulatory capital amounts and ratios has no impact on the company’s historical consolidated financial statements or shareholders’ equity, which were properly stated in accordance with accounting principles generally accepted in the United States of America (GAAP).

 

On April 16, the company issued a press release announcing preliminary financial results for the quarter ended March 31, 2014. As part of such release, the company included estimated preliminary Basel 3 capital amounts and ratios as well as Basel 1 capital amounts and ratios for 2013. Subsequent to the press release, the company discovered an incorrect adjustment being applied in the determination of regulatory capital related to the application of the fair value option to certain legacy Merrill Lynch structured notes resulting in an overstatement of its regulatory capital amounts and ratios. The company correctly adjusted for the cumulative unrealized change on structured notes accounted for under the fair value option, but it incorrectly adjusted for cumulative realized losses on Merrill Lynch issued structured notes that had matured or were redeemed by the company subsequent to the date of the Merrill Lynch acquisition.

 

As a result, the company is making the following adjustments to the previously announced estimated preliminary capital ratios for the first quarter ended March 31, 2014: the estimated Basel 3 Standardized transition common equity tier 1 capital ratio was revised to 11.8 percent, down 5 basis points; the estimated tier 1 capital ratio was revised to 11.9 percent, down 21 basis points; the estimated total capital ratio was revised to 14.8 percent, down 21 basis points; and the estimated tier 1 leverage ratio was revised to 7.4 percent, down 12 basis points.

 

Although not required by GAAP, the company has in prior periods, including the first quarter of 2014, disclosed estimates for its Basel 3 fully phased-in common equity tier 1 ratios in quarterly earnings releases. On a fully phased-in basis, Bank of America estimates that for the first quarter ended March 31, 2014, the common equity tier 1 capital ratio under the Basel 3 Standardized approach decreased 27 basis points to 9.0 percent from the previously reported estimated ratio, and the estimate for the common equity tier 1 capital ratio under the Basel 3 Advanced approaches decreased 29 basis points to 9.6 percent from the previously reported estimated ratio. These ratios exceed the company’s estimated 2019 minimum common equity tier 1 ratio requirement, including buffers, of 8.5 percent.

 

* * *

 

Bank of America promptly notified the Federal Reserve Board (FRB) of the revisions and has been in close communication with the FRB regarding the effects of the revisions. The FRB has directed the company to resubmit its data templates and requested capital actions contained in the 2014 Comprehensive Capital Analysis and Review (CCAR). As part of this process, Bank of America will engage a third party to review processes and the materials prior to resubmission.

 

At the FRB’s request, the company is suspending its previously announced 2014 capital actions, including the $4.0 billion common stock repurchase authorization and the planned increase in the quarterly common stock dividend from $0.01 per common share to $0.05 per share. Subject to completion of the third-party review and approval from the Bank of America Board of Directors, the company will expeditiously resubmit its data templates and requested capital actions in the 2014 CCAR plan for FRB approval. The company expects the requested capital actions to be contained in the revised CCAR submission will be less than the company’s previously announced 2014 capital actions.

The good news: at least Bank of America has no error in its $55.7 trillion in total derivative exposure notional:

 

And now, presenting... The Brian Moynihan Center for bankers who can't do math good and want to fudge other numbers good too.

 

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Mon, 04/28/2014 - 08:49 | 4703493 El Hosel
El Hosel's picture

Bofa Banksters Botched Balance Sheet Bad for Banking Business... Bitchez, Good thing they are Bankers, otherwise this would be a hard pill to swallow.

Mon, 04/28/2014 - 08:50 | 4703509 knukles
knukles's picture

Clusterfuck.
Numbers don't add....
Regulators don't regulate...
Bankers don't bank...

What we have here is a failure to communicate.
Need moar propaganda...

Mon, 04/28/2014 - 08:51 | 4703515 Arius
Arius's picture

QUESTION:

i have an account with them, but somehow am getting this funny feeling about BofA ... funny name to say the least .... could potential target ....

 

wondered where can one go?  HSBC perhaps safer?  any ideas?

Mon, 04/28/2014 - 08:55 | 4703544 GetZeeGold
GetZeeGold's picture

 

 

how do we (or The Fed) trust any of the numbers?

 

I don't trust jack about jack these days.

Mon, 04/28/2014 - 09:11 | 4703594 Headbanger
Headbanger's picture

It's all play money and they'll just get moar from the FED anyway.

So why give a crap about their numbers being right!!?

Mon, 04/28/2014 - 09:15 | 4703607 negative rates
negative rates's picture

Great, now they are indebted to the insurance man, and with no grandma to spill the beans of corruption.

Mon, 04/28/2014 - 09:23 | 4703641 svayambhu108
svayambhu108's picture

WTF, this things don't have internal conflicts, are they hollow on the inside ?

Or this kind of dissonance make some of their people jump for the nailgun.

Mon, 04/28/2014 - 09:24 | 4703646 bania
bania's picture

The balance sheet has to be at least... three times bigger than this!

Mon, 04/28/2014 - 10:27 | 4703854 max2205
max2205's picture

It's not fraud if you admit it before they find it.

 

Janet to Brian...psst. ...there's a bust in your spreadsheet. ..your welcome

Mon, 04/28/2014 - 09:16 | 4703612 negative rates
negative rates's picture

Have you seen the shape of that fridge lately?

Mon, 04/28/2014 - 08:55 | 4703547 kaiserhoff
kaiserhoff's picture

Put spreads.  Heads you win, tails you win bigger.

It's the way of the Lloyd;)

Mon, 04/28/2014 - 09:09 | 4703588 Cognitive Dissonance
Cognitive Dissonance's picture

Safe banks are an illusion in a leveraged fiat world. At this point there are no safe or safer banks since the very foundation of the financial system is crumbling. I now return you to your scheduled programing already in progress.

Mon, 04/28/2014 - 09:42 | 4703708 Arius
Arius's picture

we have to use a bank though ...at least i have to.

i have seen comments about community, union banks, but am not sure if anyone can open accounts with them ...previously, I was not as worried.

 

btw, that good be a good topic to explore on your blog ... people might be interested ....

thanks for your reply!

Mon, 04/28/2014 - 09:59 | 4703758 Bangin7GramRocks
Bangin7GramRocks's picture

As long as they have whatthefuckever amount of derivatives, all the big banks are safe as can be. The central banks will have to coddle them and bail them out because the alternative is a worldwide financial collapse. Damn, it feels good to be a gangsta!

Mon, 04/28/2014 - 10:42 | 4703902 JRobby
JRobby's picture

Safe if you have less than $250k. The printing press will replenish you.

What are they looking for with these silly capital requirements anyway? Solvency? As we careen toward Sept 2014 marking the 6th year of being "In-"

 

Mon, 04/28/2014 - 10:13 | 4703798 slyhill
slyhill's picture

You STILL have an account with BofA and are now wondering if you should go to HSBC?

Oh, wait, sorry... missed that sarc tag.

Mon, 04/28/2014 - 13:27 | 4704493 kchrisc
kchrisc's picture

"Please walk quietly to the exists marked 'gold.' No running., walk calmly. Oh fuck it, RUNNNNNNN!"

Mon, 04/28/2014 - 08:55 | 4703542 BandGap
BandGap's picture

I just get pissed when people are expected to swallow "math errors" as an explanation for a fuck up. Funny how these "math errors" are never a positive thing for a company. odd that they are usually exposed when the company is under scrutiny, too. The coincidence is killing me.

 

Mon, 04/28/2014 - 09:18 | 4703625 El Hosel
El Hosel's picture

When your mission is to beat by a penny.... on Billions of dollars of fraudulent transactions ..... regardless of what the actual numbers would be if marked to anything resembling reality, its not easy.

Amazing how "Beat by a Penny" comes up over and over again for all the corporate giants. I guess where there is a crooked balance sheet there is a way.

Mon, 04/28/2014 - 09:26 | 4703653 spastic_colon
spastic_colon's picture

they should put B of A in one of the indexes..........oh wait

Mon, 04/28/2014 - 11:45 | 4704094 waterhorse
waterhorse's picture

Bankster-speak:

Robo-signing = Forgery, fraud

Sloppy Paperwork = Forgery, fraud, uttering

Math Error = Control fraud

Mon, 04/28/2014 - 09:18 | 4703628 Stoploss
Stoploss's picture

Who said math doesn't have a sense of humor?

 

Mon, 04/28/2014 - 08:52 | 4703511 Arius
Arius's picture

dublicate

Mon, 04/28/2014 - 08:47 | 4703501 El Hosel
El Hosel's picture

When did "we" trust the numbers?

Mon, 04/28/2014 - 08:50 | 4703513 BandGap
BandGap's picture

Nobody botched anything. The numbers saw the light.

Thieves, all of them.

Mon, 04/28/2014 - 08:52 | 4703517 MickV
MickV's picture

Uh... We don't?

Mon, 04/28/2014 - 08:59 | 4703521 kaiserhoff
kaiserhoff's picture

Translation into English:  Bofa's auditors wouldn't take the risk of signing off on this.  Expect more, not less.

Weather forecast:  Partly cloudy with occasional falling bankers.

 

Mon, 04/28/2014 - 09:12 | 4703595 Pickleton
Pickleton's picture

Weather forecast: Chance of banker suicide low today with 80% chance of auditors sprinkling from the sky.

 

Mon, 04/28/2014 - 10:56 | 4703961 I Write Code
I Write Code's picture

More toxic sludge from ML.

The auditors already have signed off on it three times, apparently, and more than likely with the knowledge or urging of the United Snakes Department of the so-called Treasury.

I'm sure this has all been on a yellow sticky note on some junior auditor's desk for for years.

The Merrill Lynch and Countrywide acquisitions were just bad, bad, bad decisions for BofA, but remember they were more or less coerced and even cosigned by Treasury and Fed when they were made, so I'm sure that ANYTHING that comes from those is heavily insured by, well, you and me!

Mon, 04/28/2014 - 08:52 | 4703522 101 years and c...
101 years and counting's picture

my question is:  when did BAC know and then tell Warren so Warren could dump his shares before everyone else?

Mon, 04/28/2014 - 08:58 | 4703530 Dr. Engali
Dr. Engali's picture

Quick give that bank a bail out. we don't want these valuable contributors to society missing their bonuses. The poor bankers might starve, and we might not get trickle on.

Mon, 04/28/2014 - 08:54 | 4703533 fonzannoon
fonzannoon's picture

You gotta hand it to BofA. They saw an error, and they came forward with it. That is what I like to see in an organization. Sure they may be punished in the meantime, but longer term, they are displaying the character that I look for. I think I speak for everyone on here when I say congratulations to BofA, and i'd like to start a fund to donate to their high up executives to help them through this difficult time.

Mon, 04/28/2014 - 08:57 | 4703555 kaiserhoff
kaiserhoff's picture

An electric cattle prod up the ass might help them move through this difficult time;)

Mon, 04/28/2014 - 09:16 | 4703611 AUD
AUD's picture

A dominatrix told me that's actually a BofA executive favourite at the Hellfire Club.

Mon, 04/28/2014 - 09:32 | 4703682 kaiserhoff
kaiserhoff's picture

That place is still there?  Sheeeit.  A Dude who might know once told me it's the kinkiest place on earth.

I'm sure Europe has better.., er, worse,...er WTF?

Mon, 04/28/2014 - 09:31 | 4703676 NotApplicable
NotApplicable's picture

Channeling MDB?

I see that one person failed to note this.

Mon, 04/28/2014 - 09:35 | 4703693 fonzannoon
fonzannoon's picture

I will check back in a few. My local BofA branch just opened and I am in a huge argument with the new accounts person. I am trying to open a CC and demanding they charge me 24% instead of the usual 20% but they are telling me they are not sure how to facilitate it.

Mon, 04/28/2014 - 08:54 | 4703537 MFL8240
MFL8240's picture

A must read for all who think this game of chicken will work for the US.

 

http://www.silverdoctors.com/us-shoots-self-in-foot-via-sanctions-dollar...

Mon, 04/28/2014 - 08:56 | 4703552 zipit
zipit's picture

The game of "slap the Russian bear."

Mon, 04/28/2014 - 08:56 | 4703549 TideFighter
TideFighter's picture

Bank Bear of Stearns America-This pig shoulda been bacon a long, long time ago. 

Mon, 04/28/2014 - 09:15 | 4703608 A_Nejad
A_Nejad's picture

Not unless you like kosher bacon..

Mon, 04/28/2014 - 08:56 | 4703550 SlipStitchPass
SlipStitchPass's picture

Not sure why anyone would even go into Skank-of-America? I live in a small city, all of the banks are open and friendly. You go into bankl of America and they are dirty, old, understaffed, and they have a 3 inch wall of bullet proff glass between you and the teller with some futuristic camera devive starring you in the face.

All of their Teir1 Capital pledged as collateral against their derivative bets? TBTF at its finest.

Mon, 04/28/2014 - 08:56 | 4703551 LawsofPhysics
LawsofPhysics's picture

I often wonder when the average small business will also get to use mark to fantasy accounting like these asshats.

roll the mother fucking guillotines...

nothing changes otherwise.

Mon, 04/28/2014 - 09:06 | 4703579 Fix-ItSilly
Fix-ItSilly's picture

are you kidding? Unlike banks, the average small business would have to pay real taxes on fantasy profits!

Mon, 04/28/2014 - 09:00 | 4703556 youngman
youngman's picture

Dont worry..all the banker bonuses will be calculated on the old numbers...you can still buy that house in the Hamptons...

Mon, 04/28/2014 - 09:18 | 4703622 negative rates
negative rates's picture

Don't worry, be happy. Live the wild life, vote for a politician.

Mon, 04/28/2014 - 09:03 | 4703571 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Par for the crooked course.

How long were they waiting to fess up to this?

Who gave them the green light?

This is a utility company now, after all.

Mon, 04/28/2014 - 09:13 | 4703602 FreeNewEnergy
FreeNewEnergy's picture

Sorry, Dollar Bill, but, calling BAC a utility is like calling Hillary a lovely woman. Utilities provide reasonable service and issue fairly good dividends.

Hillary... um, Bill went looking elsewhere... more than once.

Mon, 04/28/2014 - 11:16 | 4704019 Seize Mars
Seize Mars's picture

Really? Is that the defining aspect of a utility?
Where I live, comparing the electric company to Bank of America would be an insult. To BAC, that is.

Mon, 04/28/2014 - 09:06 | 4703577 MFL8240
MFL8240's picture

No problem, fire half the staff and raise the bonuses for the CEO.  It was the fault of the tellers, not the accounting and corporate offices!!  This way they can send out a made up report about the future earnings. Reminiscent of 2008!

Mon, 04/28/2014 - 09:15 | 4703610 Kayman
Kayman's picture

Press Release

   The SEC has just announced a new, tougher requirement for all the TBTF banks. Future financial statements will be required to be written in pencil so "adjustments" can be completed on a more expedited basis.

Mon, 04/28/2014 - 16:06 | 4705170 waterhorse
waterhorse's picture

It's all Linda Green's fault.  That bitch!

Mon, 04/28/2014 - 09:09 | 4703589 FreeNewEnergy
FreeNewEnergy's picture

Not to worry, Dick Bove will appear shortly on CNBC and explain why bank stocks should be in everybody's portfolios.

Afterwards, Bove will attempt to take a dump in the CNBC lavatory, only to fail for the 345th time, remaining utterly constipated, or, in Seinfeld-speak, "backed-up."

Forlorn, Bove will re-read the words he wrote on the bathroom wall many years ago:

"Here I sit, broken-hearted,

Came to shit, but only farted."

Mon, 04/28/2014 - 09:22 | 4703591 Dr. Engali
Dr. Engali's picture

Of all the banks I am amazed that BofA is still around. Especially after they overpaid so much for that piece of shit Merrill which was about to go under.You knew they weren't part of the club when they didn't get a sweet deal like the Morgue did with Bear.

Mon, 04/28/2014 - 09:33 | 4703683 NotApplicable
NotApplicable's picture

Whipping boy.

Mon, 04/28/2014 - 16:10 | 4705180 waterhorse
waterhorse's picture

Kenny Boy Lewis golden-parachuted out of Bank of Countrywide-Lynch, giving golden showers to everyone else.  Nice how Angelo Mozilo didn't suffer any collateral damage either.

Mon, 04/28/2014 - 09:12 | 4703597 F.A. Hayek
F.A. Hayek's picture

Bad weather? BAC $6.00.

Mon, 04/28/2014 - 09:12 | 4703600 Ignorance is bliss
Ignorance is bliss's picture

BofA gives the impression they are still using old fashioned calculators with paper to keep their books. I wonder if all the big banks have material shortfalls. I'd love to know what assets they consider tier 1. I bet they are still using mortgage backed securities. We'll find out. Looks like housing is teetering again.

Mon, 04/28/2014 - 09:18 | 4703630 Kayman
Kayman's picture

"BofA gives the impression they are still using old fashioned calculators with paper to keep their books"

Yeah, you're right- an Excel spreadsheet is so much easier to create numbers on...

Mon, 04/28/2014 - 09:22 | 4703640 AUD
AUD's picture

And so much more real than pencil & paper.

Mon, 04/28/2014 - 09:13 | 4703601 MathWins
MathWins's picture

The question now is - how do we (or The Fed) trust any of the numbers?

Hahaha - we don't.  And we don't trust the Fed either.  And anyone with a brain hasn't for a long time.

Mon, 04/28/2014 - 09:21 | 4703636 Kayman
Kayman's picture

"And we don't trust the Fed either."

When the Fed takes a loss all they need to do is write themselves a check and voila, net worth is fixed.

Mon, 04/28/2014 - 09:14 | 4703605 Bernoulli
Bernoulli's picture

When looking at the table with the banks derivatives exposure it becomes crystal clear:

It's the end of the world as we know it

 

 

Mon, 04/28/2014 - 09:16 | 4703613 buzzsaw99
buzzsaw99's picture

note to bank auditors and accountants: the banks may be too big to fail, the ceos might be too big to jail, but YOU DEFINITELY AREN'T AND WILL BE THROWN UNDER THE BUS IN A HEARTBEAT.

Mon, 04/28/2014 - 09:16 | 4703616 1stepcloser
1stepcloser's picture

Common Core is a bitch, huh BOA!...

Mon, 04/28/2014 - 10:25 | 4703839 Chuck Knoblauch
Chuck Knoblauch's picture

The banks run DOJ.

Mon, 04/28/2014 - 09:17 | 4703618 Bernoulli
Bernoulli's picture

Pre-market only 4.45% down? There are still a lot of optimists out there...

Mon, 04/28/2014 - 09:25 | 4703650 Racer
Racer's picture

"Just weeks after the Fed signed off"

Shows how much you can trust their analysis of any bank's health!

Like Bazooka man saying fannie and freddie were perfectly okay just before they weren't

ChairSatan's "well contained"

Liars and snake oil sales men the lot of them

 

Mon, 04/28/2014 - 09:26 | 4703654 ncdirtdigger
ncdirtdigger's picture

SHAMWOW

Mon, 04/28/2014 - 09:32 | 4703680 Youri Carma
Youri Carma's picture

The question now is - how do we (or The Fed) trust any of the numbers?

The FED doesn't care because they fudge the numbers themselves and wished that this hadn't come out at all.

We the Muppets don't care at all and We the Zero Hedge readers already knew.

Mon, 04/28/2014 - 09:39 | 4703703 insanelysane
insanelysane's picture

This morning I read an article in the local newspaper that 4 out of 5 kids are graduating high school and how that is such an improvement.  My initial thought was how meaningless government numbers have become.  Graduation rates are up, crime rates are down, inflation is zero, unemployment rates are down, home sales are up, auto sales are up, but yet these numbers mean nothing.

Mon, 04/28/2014 - 09:40 | 4703709 F.A. Hayek
F.A. Hayek's picture

Fed driven
BAC driven

Who wants to bet the announcement came from .gov, realizing we are headed into the tank?

Mon, 04/28/2014 - 09:49 | 4703734 Cthonic
Cthonic's picture

Wow look at that gap on the daily chart.  Where is the algorithmic love?  Just so you know, fdic thinks this is just swell, seeing they only expect 4% tier 1 capital ratio.

Mon, 04/28/2014 - 09:50 | 4703735 FranSix
FranSix's picture

Is there going to be another banker You-Googly?

Mon, 04/28/2014 - 10:13 | 4703796 Chuck Knoblauch
Chuck Knoblauch's picture

No one audits the "stress test" except the Federal Reserve?

Looks like a conflict of interest.

Maybe someone else should audit long division calculations?

Division is hard math for Common Core graduates.

You cannot divide a number by ZERO you fucking morons!!!

 

 

Mon, 04/28/2014 - 10:17 | 4703810 Chippewa Partners
Chippewa Partners's picture

Let Jack Welsh have a chat with the CFO.   That will get those numbers in line.

 

Mon, 04/28/2014 - 10:21 | 4703823 Ban KKiller
Ban KKiller's picture

Bank of America is run by and staffed by idiots. No, I am not kidding. We face BofA in court all the time and those attys are just plain stupid when actually confronted with their lies and malfeasance. I prefer to fight the stupid and overworked drones that BofA provides. We do our best to fuck them up at every turn. 

Stack lead and free the FED! "Free" the FED they way they free us. To death. 

Mon, 04/28/2014 - 11:16 | 4704021 spacehedgie
spacehedgie's picture

I think the smart people at BAC just noticed that Jamie's joint received a lot of free press coverage and media attention for bringing up a white London whale.

So, they decided to introduce the world to the closely related American humpBACwhale.

Mon, 04/28/2014 - 12:04 | 4704129 medium giraffe
medium giraffe's picture

$55T.

What difference, at this point, does it make?

Mon, 04/28/2014 - 13:06 | 4704414 Watson
Watson's picture

This submission meant a great deal to BoA.
BoA's shareholders would benefit if it went through, and BoA management were doubtless highly financially incentivised to ensure the submission would go through.

Yet they _still_ couldn't get all the calculations correct.

And the mortgage issues go on and on and on.

BoA really is an example of why you DO NOT want the government, or central bank, (or anyone else) to interfere with the normal working of the market, which long before now would have caused BoA to be shut down.

They really are a total waste of space.

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