Regulators of large US Banks are aiming to make it more difficult for the banks to pay dividends. Regulators have said that they want banks to hold enough capital, even beyond what is considered ‘healthy’ to make sure that the banks will still be able to maintain their dividends even through rough economic times.
This introduced more uncertainty into the banking system as now CEO’s and other officials are unclear about how much capital they will need to hold. “These regulators must not own any stocks,” said a Wells Fargo shareholder. “These banks should be able to raise dividends, as the shareholders are the only ones taking a hit. Now the stock prices will simply fall on these new rules.”
Eugene Ludwig agreed with this view. “In some cases it’s (not increasing dividends) counterproductive,” he said. He added that some banks may resort to share buybacks, but this may not fly with regulators either.
Andy “Raw” Kibbens, co-CEO of The Markets Are Open took another approach. “This will lead to stronger, better capitalized banks,” he said. “I guess we will have to wait for them to be strong enough so that shareholders can get their dividends,” he sighed.
Eventually dividends could be used by banks as a tool to demonstrate their health. Gerard Cassidy, an analyst at RBC Capital Markets spoke on the lines of this. “…if they want to do acquisitions, they’ll have a better currency.” Even the CEO of JP Morgan, Jamie Dimon, said that his shareholders want higher dividends.
The next week could provide bank stock shareholders with some answers. If not, the banking sector could be headed lower as pessimists fear that dividends won’t be coming back in the near future.
No comments:
Post a Comment