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October 06, 2008 – Comments (12)

Ok, $700 billion bailout and look at this Bank of America announcement.  They only earn 15c per share yet they are paying a dividend of 32c per share.  They have the nerve to imply that some how reducing the dividend is adding capital.

Reducing the dividend is mere reducing the bleed.

Unbelievable that tax payers got saddled with $700 billion and it did not required a halt on all financial dividend payments until tax payers are paid back.

Congressmen's phones should be ringing off the hook about this one.  This is worse then theft.

12 Comments – Post Your Own

#1) On October 06, 2008 at 5:52 PM, Imperial1964 (94.18) wrote:

It's worse than theft.  It's government.

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#2) On October 06, 2008 at 5:54 PM, dwot (29.11) wrote:

Conservative Greed

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#3) On October 06, 2008 at 6:31 PM, btown819 (91.13) wrote:

There is a lot wrong out there, but this is far from the biggest bone needing to be picked.  From what I recall, the $700B was to be used to fix the system, not change all the banks to government controlled entities.  That would be far worse.

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#4) On October 06, 2008 at 6:38 PM, dwot (29.11) wrote:

btown, how about just a condition that in order to qualify dividends may not be paid until such time as taxpayers are repaid.  They would then have a choice.

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#5) On October 06, 2008 at 7:02 PM, TMFLomax (90.05) wrote:

did you all catch the section about credit quality. 

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#6) On October 06, 2008 at 7:14 PM, btown819 (91.13) wrote:

Technically, BAC doesn't owe the taxpayers.  Morally, BAC should probably owe some of that $700B to the tax payers, but so too should the government that is laying out the cash.  I won't even try to quantify this except to say that both private enterprise and government are to blame here. 

 As far as the dividend goes, that is just a tool to allocate capital to shareholders.  If they suspended the dividend they would probably just allocate the capital elsewhere to something else ranging from T-bills, loans to customers, making acquisitions, or maybe even buying back stock (I'm not necessarily advocating any of these).  Frankly, taking away the dividend probably increases the chances of BAC making more acquisitions to generate shareholder returns when a dividend is not an option.  More consolidation in the banking industry isn't a trend I'd like to see accelerate anymore than it has already.  I also doubt this type of trend would be anyway to repay taxpayers (directly or indirectly).

I understand your sense of moral outrage, but I think attacking the dividend is the wrong way to express it.

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#7) On October 06, 2008 at 8:57 PM, rd80 (95.49) wrote:

As I understand it, Treasury has broad powers on conditions for banks selling 'assets' to TARP and could impose a dividend restriction as a condition for participating. 

I don't understand how a forced dividend suspension helps taxpayers unless you were going to require that money to be paid to TARP instead.  That would be a huge disincentive to participation in the program and I don't see how you could impose it on banks that choose not to participate in TARP.

My guess is most of the stronger banks will choose not to play in TAPR because of the equity dilution from the warrant requirements.  Those that are in trouble won't have much choice.  

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#8) On October 06, 2008 at 8:58 PM, dexion10 (27.05) wrote:

btown... I think dwot has it right on the money.


BAC swallowed Countrywide and Merrill Lynch. If you don't think BAC will be a heavy user of the gov't 700B life line then you must've been a sleep for the past 5 years.

BAC overpaid for CFC and for Merrill. Both co's have toxic paper and worse toxic liabilities....

Some other time we can talk about how jacked up BAC's balance sheet is but for now let's just focus on the fact that BAC now owns Merrills CDO's and CFC's mortgages (some of the worst in the biz).

It's shameful that BAC is paying a dividend - but I bet a few years from now BAC will be broken up as a result of these poor decisions.

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#9) On October 06, 2008 at 9:53 PM, btown819 (91.13) wrote:

The two primary ways businesses generate returns for shareholders are through earnings and dividend payments.  Preventing dividend payments only eliminates one way that shareholders generate returns.  What exactly is the point of eliminating the dividend if it is not effective in eliminating shareholder returns (or transfer them to the government as repayment)?  The bottom line is that the cash BAC obtains will be used to try to generate returns for shareholders, regardless of the source (including a share of a $700B pie) in which it was obtained and regardless of whether that form of shareholder returns includes dividend payments or not. If you are going to argue that paying dividends to shareholders is inappropriate, why not argue that BAC should come under government ownership until the $700B is repaid?  Otherwise, you are just arbitrarily setting a double standard for forms of shareholder returns. 

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#10) On October 07, 2008 at 10:29 AM, Rehydrogenated (33.66) wrote:

What!? A double standard? How could such a thing happen in Amerika!

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#11) On October 09, 2008 at 3:03 PM, cartaozinho (< 20) wrote:

I see the CFC deal as hugely accretive going forward (it was already accretive to the tune of $0.06 EPS this quarter!)...Also, let's not forget that the government just ripped the legs off the largest mortgage servicers...doesn't CFC do some mortgage servicing?

I'm less happy about the MER deal and am only now getting familiar with MER's book and least it's an all stock deal!  Also, given the way the market is pricing MER, it seems like there is still a reasonable probability that the deal won't go through...

Oh yeah, in case this wasn't clear from the above: I'm long BAC.

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#12) On October 21, 2008 at 2:00 AM, ikkyu2 (97.84) wrote:

The point is that these banks are short of capital, yet instead of retaining earnings on the balance sheet and using those earnings to capitalize themselves, they are paying out more than they are earning to shareholders and borrowing money from the American taxpayer to capitalize themselves.

This is, precisely, a wealth transfer from the American taxpayer to BAC shareholders.  It's outrageous.

I have gone to great lengths not to invest in these corrupt, ill-managed institutions, going so far as to hold a short financials ETF to offset to neutral that portion of my S+P 500 holdings that are in financials.  Now not only am I forced as an American taxpayer to own part of these banks, but wealth is transferred from me by taxation to the shareholders of these institutions.

Reminds me of the Stamp Act.  Wars have been fought over less. 

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