December 10, 2007

WM Cuts dividends U.S.: Washington Mutual to Take Write down, Slash Dividend

It was expected that some of the banks will have to cut their dividends. The dividend cut will contribute $1.4 Billion in cash saving to the WM. In addition the bank is planning to raise capital and cut costs.

The tally for the crises so far is an awesome $65 billion in write downs and in the next year I am expecting to be busy updating my spreadsheet with additional figures, you can find it here. So far the write downs amounted to 10.25% of reporting banks market cap.

I expect that Citi will follow suit after the new CEO takes the helm, and cut its dividends, although Citi chairman said the dividends will not be touched. Citi has been seeking costly capital, the 11% convertible sale, and selling real estate assets and leasing them back to raise funds.

A dividend cut is more than likely as Citi problems keep mounting. Moody's downgrade of SIV papers will no doubt hurt the SIV business model of investing in long term assets and financing the purchase by short term borrowings. These borrowings will have to be financed with higher rates, and that is if there is any takers. Citi will have to bail out these SIVs meaning it will need cash to do so.

How much is the dividend cut is going to be, I am not sure. Citi pays $11 Billion a year in dividends to shareholders and so far it has raised $9 Billion from capital raising and real estate sales to offset the reported $5 billion write down in the 3 rd quarter. Citi is expected to have an additional write down of $5-10 Billion, so a $5-7 billion dividend cut will not be that surprising.


MG said...

Nice blog here...

Do you believe BAC has any chance of cutting its dividend?

Sami said...


I do not think BAC will cut dividends.

It has a much better capital ratio than Citi. It has steady and more solid capital base and access to deposits than Citi so barring any catastrophic exposure in its operations, which I do not believe it has, the dividends is safe.