We’ve said for some time that Brian Moynihan is in a box. Revenue is tight, expenses still high — which is why BAC keeps shedding jobs — and the stock price under pressure. One way out — jack up the dividend a little bit to entice investors to hold on.
Except that the Federal Reserve just said no. In other words, the Fed does not believe BAC has sufficient capital to start siphoning some of it off for shareholders. What this does to the stock price going forward is anyone’s guess, but it is unlikely to be positive.
Even before this little regulatory speedbump there had been speculation that one way for Moynihan to manufacture value — and maybe rid himself of internal cultural headaches — would be to spin Merrill Lynch back out as an independent entity. In fact, there is reason to believe that a breakup would unlock value across many different BAC business lines — lines that the previous management cobbled together, from credit cards to car loans.
Essentially BAC and the other big zombie banks are in a race to re-inflate the speculative and highly profitable subprime leading bubble before investors and taxpayers wise up. Congress and federal regulators are actively assisting this process by shifting risk — and hence capital requirements — to entities with no capital requirements, like private mortgage insurers. As ever, Chris Whalen has all the gory details here.
At the front end the Fed is doing PR work by appearing to ride herd on capital requirements — thus looking out for itself when the next crash happens. But who is looking out for Mr. and Mrs. Cul-de-sac? You are on your own, folks.
