Dividend Cut Looms At First Interstate
Executives at First Interstate Bancorp have done a lot in 18 months to improve the company's financial standing, but to some it's beginning to look as though those measures will fall short.
And that could force the Los Angeles-based company to cut its dividend Sept. 12, the next time its board meets.
Large Potential Savings
The company now pays $187.2 million annually in common-stock dividends. For example, cutting the $3 per share annual payout by one-third would conserve $62.4 million a year.
The company has said it wants to improve its capital ratios to reach a tangible common equity ratio of 5% by yearend. First Interstate, which had tangible common equity of about 2.7% 18 months ago, has taken dramatic steps since then, but the ratio still is just 4.2%.
"They said at our conference a couple weeks ago that [a cut] might be possible if they're not earning the dividend," said Ronald Mandle, an analyst at Sanford C. Bernstein & Co.
Management has sold nearly $9 billion in assets since the beginning of 1990, bringing the bank's size to $50.4 billion. Expense cuts have been initiated. The bank sold common stock to Kohlberg, Kravis, Roberts & Co., and a souped-up dividend reinvestment plan has been reinstated.
No Control of Environment
"But they cannot get around the fact that they do not have control of their operating environment," said Sandra Flannigan, an analyst at Alex Brown & Sons.
Nonperforming assets, already at $1.8 billion, could rise slightly in the second quarter, Ms. Flannigan said, indicating she remains concerned about the economic climate in California and Nevada, where a lot of the banking company's loans have been made.