Bank of America has $4 billion less than its accountants thought it did. This small accounting error, which executives disclosed on Monday, went unnoticed by BofA's accountants and the bank's outside accounting firm, PricewaterhouseCoopers, for years.
Naturally, the Federal Reserve is upset. Mike Mayo, an analyst at the investment banking group CLSA, tells The New York Times, "There are signs that controls are not as tight as they need to be. It's a bank. It needs to get the numbers right." BofA, led by CEO Brian T. Moynihan, passed the Fed's stress test in March and got approval for a $4 billion share repurchase plan and a 4-cent increase in its quarterly dividend. That's off the table now — the bank will have to go back to the Fed and explain what went wrong in order to make any payouts in the future.
Some unnamed Wall Street executives are blaming the Fed for BofA's mistake, however. One bank exec told Politico's Ben White,
Easy to blame BofA here but seems like some of the blame goes to the opaque design and implementation of stress testing by the Fed. Lot of confusion even among very high paid risk officers at the big banks about how the accounting works ... And the Fed with its battalion of on-site inspectors didn't catch this error itself even though BofA had been reporting this way for several years.
The executive continued, "When the Fed can wipe out $10B of value at one of the country's largest banks overnight for a mistake it didn't spot for several years, bank investors are going to remain very nervous." BofA's stock dropped 6 percent Monday night.
Peter Eavis and Michael Corkery at the Times also note that the error raises "questions about the thoroughness of the Fed's annual stress tests." BofA's capital is just too big to count, apparently.
This article is from the archive of our partner The Wire.