Bank of America executives told shareholders Wednesday the accounting mistake that scuttled a long-awaited dividend increase was “disappointing,” and they pledged to get to the bottom of what happened.
Shareholders who crowded into the Charlotte Marriott City Center brought plenty of questions about last week’s announcement that the Charlotte bank had miscalculated its capital ratios. CEO Brian Moynihan said the bank is working to put the matter behind it.
“I know the capital adjustment we had to make last week was disappointing to you and was disappointing to all of us,” said Moynihan, presiding over his fifth annual shareholders’ meeting as CEO. “We’re working quickly … so we can move forward.”
Board Chairman Chad Holliday, two board committee chairmen and the bank’s auditing firm, PricewaterhouseCoopers, also sought to reassure investors that the mistake didn’t suggest larger problems.
Frank Bramble, chairman of the bank’s enterprise risk committee, said the bank is “very anxious” to figure out the root cause of the accounting mistake.
“We are on top of this,” he said. “We take our oversight responsibility very seriously.”
The executives offered no hints on the future of the bank’s dividend, which had been set to increase to 5 cents per share, up from the penny per share the bank had paid since the financial crisis. The bank also had planned to buy back $4 billion in common stock.
But on April 28, the bank said that for years it had incorrectly accounted for a type of debt inherited in its 2009 Merrill Lynch acquisition – meaning the bank had over-reported capital levels by about $4 billion. Bank of America is working to come up with a new plan and has until May 27 to submit it to the Federal Reserve.
On Wednesday, Chief Financial Officer Bruce Thompson reiterated that the bank would return less capital through dividends and share buybacks than it had previously announced.
All directors re-elected
At a meeting that also featured a shouting match between two shareholders and about a dozen protesters outdoors who satirically played the role of bankers, the formal business progressed as expected:
• All 15 directors were re-elected despite word from the California State Teachers’ Retirement System that it had voted its shares against the election of four Bank of America directors who were on a committee responsible for auditing. The pension fund cited concerns over the capital error. North Carolina’s pension system voted against two directors on the committee.
• All four management proposals up for consideration were ratified, including 93 percent approval in an advisory vote on executive compensation. Moynihan was awarded $14 million for his performance in 2013, the bank disclosed earlier.
• None of the four shareholder proposals, which included pushes for more disclosure on lobbying and climate impact, were approved.
Analyst Mike Mayo of investment firm CLSA, grilled executives on exactly when they found out about the capital miscalculation and how it was discovered. Thompson said members of the chief financial officer group found the mistake as they were preparing a quarterly securities filing and informed the board within about 24 hours.
Other speakers focused more on the stalled dividend increase.
“You’ve cost me close to $12,000 of annual income,” shareholder Judy Koenick, who is a regular at the annual meetings, told Moynihan regarding the dividend. “I’ve had to liquidate a good portion of my assets, which makes it very difficult when two young boys ask me for $600, which I’ve always provided, so they can play baseball this summer and I have to tell them that I don’t have the cash available.”
Later a shouting match ensued between Koenick and another shareholder.
It started when Koenick began asking Moynihan to detail the bank’s impact on the environment. She asked Moynihan what kind of light bulbs the bank uses.
The question irritated shareholder Peggy McMahon.
“Sit down and shut up,” McMahon shouted at Koenick.
McMahon then came to Moynihan’s defense: “I love you, Mr. Moynihan.”
“You and my mother, that makes two,” he joked.
Billions for legal costs
Mayo, the CLSA analyst, also asked chairman Holliday whether the bank is too big and complex to manage. Besides the capital miscalculation, he cited a litany of other recent settlements and setbacks from a rough few weeks for Bank of America.
The bank said last month it lost money in the first quarter after reaching a $9.5 billion settlement with the Federal Housing Finance Agency over mortgage bonds sold to mortgage giants Fannie Mae and Freddie Mac. At the same time, the bank surprised some analysts with the news that it set aside an additional $2.4 billion in the quarter for future legal expenses.
Bank of America also continues to work with the U.S. Department of Justice toward a settlement that could reach many billions of dollars.
The payments stem primarily from the hundreds of thousands of bad mortgages inherited from the 2008 deal with subprime lender Countrywide Financial. As Bank of America has dug out from the acquisition, the bank has also laid off tens of thousands of workers to cut costs.
“I still believe, very firmly, this bank is not too big to manage,” Holliday said.
Civil rights leader the Rev. Jesse Jackson attended the meeting and asked whether any of the billions the bank is spending on settlements is going to rebuild communities hard-hit by foreclosure.
Jobs moving to U.S.
Later, Moynihan was addressed by a 13-year-old girl who said her father lost his job as a project manager with Bank of America after supervisors told him they could fill his position with someone in another country who would be paid less.
Moynihan said reducing staff is “one of the toughest things I have to do” and that the bank is moving jobs to the U.S. from other nations.
In another part of the meeting, he touted the bank’s $10.1 billion in profit last year and stressed how much the stock price has risen since 2011 – about 160 percent. Shares closed Wednesday at $14.80, up less than 1 percent.
“The earnings power of the company comes through more and more each year as we put more legacy issues behind us,” Moynihan said.
“Good progress is being made,” he said later. “We’re working hard to bring this company to the core of what we do for customers and clients.” Staff writers Rick Rothacker and Ely Portillo contributed.
Dunn: 704-358-5235; Twitter: @andrew_dunn