Banks are returning increasing portions of earnings to shareholders through dividend hikes, and experts say the trend has plenty of room to run.

Dividend growth among the nation's largest banking companies is highlighted in the American Banker's first quarter 1995 capital management report, which is based on data provided by SNL Securities, Charlottesville, Va.

The report includes the top 50 U.S. banking companies and the top 25 U.S. thrift companies (see table, page 22).

On a weighted average basis, dividends at the top 50 U.S. banking companies rose by more than 22% between the first quarter of 1994 and the first quarter of 1995, to 38 cents a share.

At the same time, the portion of earnings paid out in dividends - the so-called payout ratio - rose by nearly seven percentage points from the first quarter of 1994, to 37.6%.

Fixed-income and equity analysts say dividends will continue to climb.

"Frankly, we are forecasting dividend increases for almost every bank we follow," said Lawrence W. Cohn of PaineWebber Inc. "It will be the odd bank this year that doesn't raise its dividend."

A number of factors are driving the trend, experts say. Loaded with capital and not facing any sort of immediate credit quality troubles, many banks have no need to build equity cushions. And slow growth prospects makes it difficult to reinvest all earnings profitably and safely.

On top of all that, some institutions are intent on regaining prerecession payout levels as a means of displaying strength.

"Dividends were clearly slashed brutally during the real estate problems of a few years ago," said John Works, a fixed-income analyst at J.P. Morgan & Co. There is a trend "towards a reinstatement of the 40% payout ratio," he said, though banks have not declared specific targets.

Citicorp led the first-quarter dividend-raising charge with a 100% increase to 30 cents a share.

Midlantic Corp., Roosevelt Financial Group, First Bank System Inc., and JSB Financial Inc. all hiked dividends by at least 25% from fourth-quarter levels.

Despite hefty dividend hikes, the weighted average common equity ratio for the top 50 banks has remained relatively constant over the past five quarters, at just under 6.6%.

Not everyone thinks banks have room to reduce equity ratios, however.

"Our models are signaling that most companies are just appropriately capitalized, rather than overcapitalized for their rating level," said Tanya Azarchs, a managing director with Standard & Poor's Ratings Group.

Mr. Cohn predicted banks would not go overboard with dividends. "Payout ratios for banks remain relatively low," said Mr. Cohn, "and we're not going to get the industry to a 50% ratio."

For example, Citicorp's first-quarter payout ratio was 19.6%, a little more than half the industry average, despite doubling its dividend. The company has a long way to go before it matching the $1.75-a- share dividend level of 1990, said analysts.

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Separately, Moody's Investors Service on Wednesday lowered ratings on $5.1 billion worth of Bankers Trust New York Corp. debt, citing "adverse developments in the derivatives business."

The move was foreshadowed in March, when Moody's put Bankers Trust on credit review with negative implications.

In explaining its action, the rating agency said Bankers Trust has a large reliance on derivatives operations, making it vulnerable to the current client migration into plain, less profitable instruments.

Moody's lowered parent company senior debt ratings to A2 from A1, and it lowered subordinated debt ratings to A3 from A2.

Bankers Trust said the downgrade was unwarranted, pointing to the bank's credit quality, capital strength, and liquidity.

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