Alone among major U.S. banks, Wells Fargo & Co. has steadfastly maintained the dividend on its common stock.
But for how much longer?
The pressure ramped up on Wells on Wednesday after Moody’s Investors Service put the San Francisco bank’s credit rating, now Aa3, on review for possible downgrade.
"The review was prompted by a concern that Wells Fargo's capital ratios could deteriorate in 2009 from their current levels, which are comparatively low, because of the potential need to take high loan-loss provisions," Moody's said in a statement.
Wells has refused to acknowledge market concerns about its capital levels. The bank’s tangible common equity -- the first line of defense against loan losses -- is estimated to be about 2.6% of assets, well below the 3%-or-better levels of many of its peer banks.
With an annual dividend of $1.36 a share, Wells pays out $5.7 billion a year to common shareholders -- including Warren E. Buffett, the company’s biggest investor, who has a 6.8% stake in the bank. Cutting the payout would be an easy way to conserve capital.
That’s the route U.S. Bancorp took Wednesday when it slashed its dividend 88% to an annual rate of 20 cents a share. The move left Wells the sole remaining bank on the list of the 25 biggest dividend payors in the Standard & Poor’s 500 stock index.
Wells, like other major banks, now is undergoing a "stress test" by federal banking regulators to determine whether its capital cushion is sufficient to protect against rising loan losses if the recession deepens.
If Wells doesn’t pass the test, it would be forced to raise capital from investors or the government. In its fourth-quarter financial report Jan. 28, Wells said it had "no plans to request additional [federal] capital."
A Wells spokeswoman declined to comment on speculation about the dividend.
But more Wells shareholders may have thrown in the towel today on the payout: Even as the rest of Wall Street rallied, Wells shares slumped $1.01, or 9.5%, to $9.66 -- the first close below $10 since 1996.
At the current price the stock’s annualized dividend yield is 14%. That’s the market’s way of saying it’s sure the dividend is a goner.
-- Tom PetrunoRelated Links
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