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Say Good-bye to Dividends...

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October 24, 2008 – Comments (9)

Big Picture has a post which has a section that needs to be quoted....

"One of the things we each discussed was "What is unknown by the bulk of Investors/Traders/Public.

The most interesting of the four of us was Whalen's comments: "Read the fine print -- The $250 billion bank recapitalization effectively ends divdiends. I fhtey took the cash -- and they all needed it -- there are no divvies paid until the money ios paid back. No common dividends, no preferred either (though they will accumulate).""

It is about time the bank dividend were halted.

I expect to see other dividends decline.

 

9 Comments – Post Your Own

#1) On October 24, 2008 at 10:04 AM, dwot (52.34) wrote:

I told you so...

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#2) On October 24, 2008 at 10:06 AM, Gemini846 (50.54) wrote:

Don't you think this will push the share prices down further, or do you think that most of the institutional money has pulled out of these banks already (which is why they are trading where they are)?

 

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#3) On October 24, 2008 at 10:24 AM, rd80 (98.30) wrote:

Do you have a source link for how the recapitalization effectively ends dividends?

I've read the Treasury plan.  It requires Treasury approval before any participating bank raises the dividend or starts a share repurchase program, but it does not end dividends.

 

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#4) On October 24, 2008 at 11:02 AM, devoish (98.65) wrote:

I agree with rd80. I heard Kashkarry (or however his name is spelled) speaking before congress yesterday. His answer to the challenge of not returning value to shareholders until the loans were paid off was that the banks could not increase dividends. Unfortunately that seemed to satisfy the questioner. I think it was Dobbs.

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#5) On October 24, 2008 at 11:36 AM, awallejr (85.49) wrote:

What I read was they can't RAISE them without approval.  It doesn't stop them from paying current ones. 

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#6) On October 24, 2008 at 11:50 AM, leohaas (32.07) wrote:

Dwot is right (as usual). Here is why:

Banks will only pay dividend if they do not need the cash. And banks will only participate in the recapitalization (or bail out) if they need the cash. The only logical conclusion:

Banks that need cash will participate in the bail out and suspend dividends; banks that don't need cash will not participate in the bail out and continue paying dividends.

Minor point: the title of the blog is misleading. It only applies to banks, not to other industries. Howerver, companies in other industries may lower dividends anyway due to the recession.

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#7) On October 24, 2008 at 4:32 PM, awallejr (85.49) wrote:

Are you saying JPM, BAC, C etc who were forced to take the money can't pay on dividends?  Please show me an official link that outlines this, because that is not what I read.

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#8) On October 24, 2008 at 9:19 PM, rd80 (98.30) wrote:

Here's the relevant quote from the Application Guidelines for TARP Capital Purchase Program

"For the first three years that the Treasury owns shares or warrants in the applicant, the applicant may not increase its dividend payments on common shares without the permission of the Treasury. In addition, the applicant may not repurchase or redeem any junior preferred shares, preferred shares ranking pari passu with the Senior Preferred, trust preferred, or common shares (other than in connection with certain employee benefit programs) during the first three years of the investment without the permission of the Treasury."

The merits of canceling or continuing to pay the dividends are debatable, but there is no requirement for a bank participating in TARP to eliminate or suspend either preferred or common dividends.  

 

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#9) On October 26, 2008 at 4:13 AM, ikkyu2 (99.30) wrote:

Luckily, we all know that none of the bank board members own any stock in the banks they govern.  I'm sure they'll all quickly vote to do the right thing and cancel all the existing dividends to shareholders, which would be paid going forward using money appropriated from the taxpayers.

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