Banks Head for Worst Year In Reduction of Dividends
This year could soon shape up as the grimmest since the Great Depression for dividend cuts by major banks, unless so much slashing has already gone on that the worst is over.
Since January, 23 large banking companies have reduced or eliminated the dividends on their common stock, according to Keefe, Bruyette & Woods Inc., the New York securities firm specializing in bank equities.
Four more dividend cuts and the tally for six-and-a-half months of 1991 will match the total for all of last year in the universe of 140 bank stocks that Keefe Bruyette tracks.
Worst Since 1986
Before 1990, the worst recent year for cutting dividends was 1986, when 17 reductions occurred. That was when most major banks in Texas and elsewhere in the Southwest were reeling from the devasting impact of plunging world oil prices and a collapsing regional real estate market.
It seems unlikely, however, that the second half of the year will match the first, even though half a dozen banks remain candidates for adverse dividend action, according to Keefe.
The pace of the first half has to slacken, if only because the number of top banks not paying any dividend, 24 of 140 banks followed by Keefe, is now at an all-time high, according to John B. Works, a Keefe analyst.
Options Are Exhausted
"Obviously, those banks that have already ceased dividend payments in the wake of earnings difficulties can do nothing further - negative, that is - as far as the dividend is concerned, except continue not to pay it," he noted.
Keefe did not name banks that are possible candidates for dividend cuts during the rest of the year. But analysts elsewhere have said payouts may come under pressure at C&S/Sovran Corp., Norfolk, Va., depending of the course of its merger discussions with NCNB Corp.
At Wells Fargo & Co., San Francisco, the $4 annual payout is also viewed as less certain after that bank's recent reserve-building move. Michigan National Corp., Bloomfield Hills, Mich., has a hefty 7% yield on its stock, which can be a prelude to dividend action, but remains a well-capitalized bank.
Further Cuts Awaited
James Rosenberg, an analyst at Shearson Lehman Brothers Inc., recently said dividend cuts are possible by the two largest Chicago banks, First Chicago Corp. and Continental Bank Corp.
Mr. Rosenberg also suggested that a second round of dividend cuts is possible at two New York money-center institutions, Citicorp and Chase Manhattan.
In the midst of recent bad news on the bank dividend front, however, a number of healthy banks have raised dividends.
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