First Union Corp., acknowledging its need to firm up its balance sheets and improve its capital positions, joined a small but growing number of banking companies that have been forced this year to slash dividend payouts.
The Charlotte, N.C., company announced during a conference call Wednesday that it has halved its dividend, an adjustment that should retain about $1 billion of cash in-house in each of the next five years. 
First Union executives said a quarterly dividend of 96 cents a share will paid on March 15. The company had expected to pay $1.92.
The move is a rare one for a banking company, but First Union is following in the footsteps of Bank One Corp., which cut its dividend in July in the face of revenue and profit pressures. Zions Bancorp. cut its dividend in April.
In some ways, First Unions decision was a more painful reversal than the others. As recently as June, First Union executives had reaffirmed their commitment to a long-held strategy of boosting shareholder value by paying higher-than-average dividends.
John B. Moore, an analyst at Wachovia Corp. downgraded the stock to neutral from buy on word of the decision.
Unlike Bank One, which caters to a large degree to institutional investors, First Unions shareholders are mostly individual customers who are likely to hold the stock for income, Mr. Moore said. He reduced his rating because the dividend, which used to be the value of the stock for individual investors, is no longer a safety net, he said.
However, First Union execs and some analysts said that times and perceptions have changed significantly enough to necessitate the move. Executives said Wednesday they are aware of the markets view that the companys capital ratios are low when compared with those at peer companies.
First Union is battling a rise in problem loans extended to companies like Sunbeam Corp. and Pillowtex. During the conference call, G. Kennedy Thompson, First Unions president and chief executive officer, said that over the past six months perceptions of the market have changed, and we have come to believe that investors are weighing on our stock price.
Analysts complimented company executives on the announcement during the conference call, and some wondered why the decision had not come sooner.
Marni Pont ODoherty, an analyst at Keefe, Bruyette & Woods Inc., said cutting the dividend was an appropriate response to current market conditions.
The announcement sent First Unions stock tumbling. The stock lost $1.3125 Wednesday, or 4.76%, to close at $28.125.
Financial stocks were lackluster Wednesday on a down day for the markets. The American Banker index of the top 50 banks lost 1.07%, and the index of 225 banks fell 1.64%. The Dow Jones industrial average fell 2.51%, and the Nasdaq composite dropped 7.12%.
After First Unions announcement, Moodys Investors Service issued a statement affirming its A1 senior credit rating and stable rating outlook for the company. The dividend cut enables First Union to expand its financial flexibility by improving the companys capital ratios and liquidity position, Moodys said.
