In spite of BofA’s downbeat outlook for the rest of 2008, the bank is standing firm on its hefty dividend. At 7.5 per cent, BofA’s Tier 1 capital ratio is below its target of 8 per cent, but above the 6 per cent level regarded as a minimum for being well-capitalized. BofA's CEO has reaffirmed the bank's commitment to its dividend policy and will only consider if the economy went into a deep rescission.
As an investor I do not like the dividends to be cut, but I'd rather than than equity dilution. BofA has many options to boost its capital ratios:
- Asset sale: BofA can sell Visa stake, Chinese bank stake, investment banking division, which is underway right now.
- Less loan underwriting, which is happening right now.
- Issuance of preferred shares, and
- lastly a dividend cut.