Last October, Bank of America (BAC) cuts its dividend in half to $.32. Citigroup (C) has taken its down to a penny a share.
There are not may reasons to invest in large money center banks now, but their yield may have kept their share prices from finding new floors. The question is, if the nation’s biggest banks lose a great deal more money early next year, do their dividends disappear?
Banks may be putting a lot of their subprime-derivative losses behind them, but that still leaves them a bevy of troubles. First on that list is losses on credit car defaults and the derivatives tied to pools of those obligations. Commercial real estate loans problems are beginning to mount. Lending to companies which are candidates for default and LBO deal collapses should cause more write-offs.
If first quarter losses are deep enough, banks may be heading back to the federal government for more capital. Critics say the money that Paulson sent them from the TARP fund went in at terms which where too generous. The new Treasury Secretary may drive a harder bargain. It may mean the dividends go away as part of deal to get new capital.
Bank of America’s yield is still over 9%. Well Fargo’s (WFC) is 5% and JPMorgan Chase (JPM) pays 5.1%. None of those may last.
Douglas A. McIntyre