Capital Markets

Sign of Strength: Mellon Maintains Dividend

With other banks slashing their shareholder payouts, one takes a maverick route.
Stephen TaubApril 9, 2008

The Bank of New York Mellon Corp. announced a quarterly dividend of 24 cents per share for the second consecutive month. The news is notable because two banks cut their dividends this week and others are rumored to be planning such a move to build up their capital after taking gargantuan write-offs over the subprime mortgage and overall credit crisis.

Mercantile Bank Corp. on Wednesday cut its dividend by more than 50 percent, to 8 cents per share from the 15 cents declared in the first quarter of 2008.

“Given the current economic environment and its impact on our financial performance, we believe it is in the shareholders’ best interests to pay a reduced second-quarter cash dividend, which will enable Mercantile to conserve capital and provide the resources and flexibility to respond to uncertain market conditions,” said chairman and CEO Michael Price.

That came just a day after Washington Mutual, which had already cut its dividend from 56 cents per share to 15 cents in December, slashed the dividend all the way down to a penny per share. WaMu said this move will save $490 million in capital annually.

Back in January, Citigroup pared its quarterly dividend by 41 percent, to 32 cents per share from 54 cents. And that same month, National City Corp. cut its quarterly dividend to 21 cents per share from 41 cents. This was the bank’s first reduction since its first payout in 1935, according to Bloomberg.

A Morningstar analyst said in a recent report, “We have little doubt that for banks such as Citigroup, Wachovia, and Huntington Bancshares, maintaining their current lofty payouts simply may not be an option much longer, and shareholders may suffer further.”

The analyst added that much stronger institutions such as Wells Fargo, US Bancorp, or Bank of America would also benefit from reducing their dividends because it would free up capital that could be put to use in making high-margin loans, acquisitions, or even share buybacks.