Regional Banks Still Struggling to Boost Dividend Payments
November 19 2010 - 7:46AM
Marketwired
Investors have been shifting their attention to the financial
sector this week as remarks from the Government have raised hopes
that stronger banks will soon be able to hike their dividends or
buy back shares. Dividend paying companies have become very popular
as obscenely low interest rates have made bond returns less
appealing. Before the financial crisis, many regional banks were a
reliable source of dividends, but by mid-2009 these banks had
substantially reduced, or altogether cut, their dividend payments.
While stronger banks are likely to begin boosting their dividends
in early 2011, there are fears that the new and stricter regulatory
guidelines will continue to make it challenging for Regional Banks
to boost their dividend payments. The Bedford Report examines the
outlook for companies in the Regional Banking Sector and provides
research reports on Regions Financial Corporation (NYSE: RF) and
Marshall & Ilsley Corporation (NYSE: MI). Access to the full
company reports can be found at:
www.bedfordreport.com/2010-11-RF
www.bedfordreport.com/2010-11-MI
The Fed made it very clear that banks would have to "demonstrate
with great assurance that they could achieve the ratios required by
the Basel III framework" in order to be eligible for dividend
increases. According to the Basel Committee on Banking Supervision,
Basel III will set a tougher standard for the quality of capital as
well as the assessment of risks on a bank's balance sheet.
According to the proposals under Basel III, only if a bank
operating in a steady economic environment maintains a Tier 1
capital ratio of 12% would it be allowed to pay or increase common
dividends. While regulators are still in the process of adopting
Basel III, the most recent quarter's capital ratios provide useful
clues as to which banks are most likely to comply with the new
standards.
The Bedford Report releases regular market updates on the
Regional Banking Sector so investors can stay ahead of the crowd
and make the best investment decisions to maximize their returns.
Take a few minutes to register with us free at
www.bedfordreport.com and get exclusive access to our numerous
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The Fed also explained that banks which have yet to repay the
government bailout money received through the US Treasury
Department's Troubled Assets Relief Program (TARP) will not be
allowed to increase their dividend payments. This will disqualify
many Regional Banks. Regional Banks have struggled to return to
profitability following the financial crisis largely due to a
weaker-than-expected rebound in loan demand.
Both Marshall & Ilsley and Regions Financial would be barred
from hiking their dividends under the current circumstances as the
companies still participates in TARP. Coincidentally both companies
presently pay a meagre 4 cent annual dividend.
Marshall & Ilsley received a $1.7 billion capital infusion
under TARP, and the company says it plans to start repaying the
company's TARP debt in late 2011 and will not begin rebuilding
M&I's common stock dividend until 2013.
The Bedford Report provides Analyst Research focused on equities
that offer growth opportunities, value, and strong potential
return. We strive to provide the most up-to-date market activities.
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