Wells Fargo tops the list of bank stocks at risk for dividend cuts

While many banks have signaled that they would pay out dividends to investors regardless of the coronavirus crisis, analysts at Keefee, Bruyette & Woods have come out to say that there were “21 potential dividend cut candidates.” Although they are still of the opinion that dividends are “broadly safe” for 90% of banks, “a sharp contrast relative to the financial crisis” of 2008.

Topping the list is Wells Fargo, the only universal bank on the list. The bank’s quarterly dividend is 51 cents per share for a 9.10% yield, based on the stocks closing price of $23.96 on Tuesday.




Total assets ($ billions – March 31, 2020)

Wells Fargo & Co.

WFC 5.56%

San Francisco


Citizens Financial Group Inc.

CFG 4.22%

Providence R.I



KEY 0.28%



Huntington Bancshares Inc.

HBAN 4.60%

Columbus, Ohio


Comerica Inc.

CMA 4.49%



CIT Group

CIT 4.12%

New York


Synovus Financial Corp.

SNV 5.54%

Columbus, Ga


Umpqua Holdings Corp.

UMPQ 3.71%

Portland, Ore


First Hawaiian Inc.

FHB 3.82%



Hope Bancorp Inc.

HOPE 6.20%

Los Angeles


First Financial Bancorp.

FFBC 8.49%



Berkshire Hills Bancorp Inc.

BHLB 9.97%



Northwest Bancshares Inc.

NWBI 5.61%

Warren, Pa.


Provident Financial Services Inc.

PFS 4.36%

Jersey City. N.J


Boston Private Financial Holdings Inc.

BPFH 5.60%



Flushing Financial Corp.

FFIC 5.24%

New York


Midland States Bancorp Inc.

MSBI 8.43%

Effingham, Ill.


Washington Trust Bancorp Inc.

WASH -3.50%

Westerly, R.I


Financial Institutions Inc.

FISI 6.27%

Warsaw, NY


Heritage Commerce Corp.

HTBK -7.09%

San Jose, California


BCB Bancorp Inc.

BCBP 5.95%

Bayonne, N.J


Source: MarketWatch

The KBW analysts calculated the trailing dividend payout ratio by dividing the current annual dividend rate per share by earnings per share for the past four quarters. When the current annual dividend rate exceeds the past four quarters’ EPS, it can be said to be a payout ratio of N/A. According to KBW’s estimates, the current annual dividend rate will exceed 2020 EPS.

The KBW analysts also “suggests that the risk of a potential cut is more proceed in” for Wells Fargo and CIT Group Inc., Comerica Inc., Berkshire Hills Bancorp, and Synovus Financial Corp.

According to the analysts, “Wells Fargo’s issues appear self-isolated” given that the bank continues to operate under strict regulatory supervision amid customer-service scandals. In a May 13 report, KBW analyst Brian Kleinhanzl wrote that “WFC’s high payout ratio is the primary driver of investor fear that a dividend cut could happen,” citing an estimated dividend payout of 221% for 2020.

The KBW team also listed 6 small and mid-sized banks that have significantly reduced their dividends recently. They are Cadence Bancorp, Great Western Bancorp, Hanmi Financial Corp, PacWest Bancorp, RBB Bancorp, and 1st Source Corp.

‘Potential blowout’

In an earnings call last week, many large banks represented by their executives, all reported major declines and losses worth billion due to the pandemic. Yet many banks, including Wells Fargo and US Bank, have indicated that investors will receive dividends.

Many industry critics and former regulators have indicated a potential blowout. According to them, there was a likelihood of such a move to trigger past experiences from the 2008 financial crisis. They believe that issuing dividends is simply inconsistent with shoring up capital for a long-term, amid the coronavirus pandemic.

President and CEO of Better Markets Dennis Kelleher, spoke on behalf of the group saying that it made absolutely no sense that “banks should not be allowed to eject capital out the front door through dividends when the Fed is injecting capital throughout the financial system to prevent collapse.”

Wells Fargo CEO Charlie Scharf supported the move of paying dividends by saying that “there has to be an underlying ability for companies to be able to pay [dividends], and so to the extent that they have that ability to pay.” Adding that he thinks it is the “right thing” to do.

Fed Chairman Jerome Powell with regard to the dividend issue said based on his judgment there was no need for banks to suspend dividend payments to shareholders, saying that banks have significant capital buffers that are covered with post-financial crisis protections. In his remarks last week, he added that 8 of the largest US banks and some regional banks may have pulled out on share repurchases but “haven’t stopped dividends.”

“I don’t think that’s something that needs to be done at this point… I think our banks are highly capitalized, far more highly capitalized, with more high-quality capital than they were before the financial crisis. And you know, we’ll be watching to see how things evolve, but I don’t think that step is appropriate this time.”

Janet Yallen, Powell’s predecessor, is of the opinion that it wouldn’t be such a bad idea for banks to hold onto extra cash for insurance purposes. She said “if things work out well, banks can distribute income later on” or they may “have a buffer that will be needed to support the credit needs of the economy.”

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