BofA Halts Buybacks, Dividend Increase After Error; Stock Dives

Bank of America discovered the mistake last week as it prepared its 10-Q quarterly regulatory filing and immediately notified the Fed, said a person with direct knowledge of the process. The error had gone undetected since the firm's acquisition of Merrill Lynch in 2009, said the person, who requested anonymity because the information hasn't been made public.

The lender must resubmit a capital plan within 30 days and undertake a review to ensure no other errors, the Fed said today in a separate statement.

Bank of America, led by Moynihan since 2010, has been working for years to resolve headaches inherited with the purchases under his predecessor of Merrill Lynch and mortgage-lender Countrywide Financial Corp. during the financial crisis. The company this month reported a $276 million deficit for the three months ended March 31, its fourth quarterly loss under Moynihan.

Mortgage Costs

Today's retreat is another setback for the CEO, who has underestimated the costs tied to mortgages as he sought to return capital to shareholders. In March of 2011, the company said the Fed objected to its plan to raise its dividend. Months earlier, Moynihan told investors, "I don't see anything that would stop us" from raising the payout in 2011.

The more recent reversal erases what had seemed to be a victory last month with its approval even as Citigroup Inc.'s plan was rejected by the Fed. The Citigroup decision was based on concerns about the quality of its process, including defects the Fed had flagged before. Citigroup was also seeking its first dividend since the crisis, as well as a $6.4 billion buyback.