Wells Fargo & Co. on Friday cut its dividend 85 percent, a widely expected move that the fourth-largest U.S. bank said will save $5 billion a year.
The San Francisco-based bank also said it plans $2 billion of additional cost cuts in 2009, starting in the second quarter. It did not say where they will come from.
The bank said it has had "strong" operating results in January and February, and made $59 billion of mortgage loans in that period, up from $50 billion in the entire fourth quarter.
Wells Fargo lowered its quarterly dividend to 5 cents per share from 34 cents. The reduction follows similar-sized cuts in the last two weeks by JPMorgan Chase & Co., PNC Financial Services Group Inc and US Bancorp.
Dozens of lenders are reducing or eliminating dividends to preserve capital needed to cover rising credit losses. Bank of America Corp. has cut its quarterly dividend to a penny per share, and Citigroup Inc eliminated its payout.
"It is necessary given the continued deterioration in credit trends," said Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis. "It looks like unemployment will get worse, and the housing market is not getting better."
Howard Atkins, Wells Fargo’s chief financial officer, in a statement said the dividend reduction will create "a larger capital cushion in the near term to protect against a more adverse credit cycle if it occurs."
He said the savings should increase Wells Fargo’s ratio of tangible common equity to tangible assets, a key measure of financial strength, by four-tenths of a percentage point. The bank said the ratio was 2.86 percent as of Dec. 31. Wells Fargo’s ratio is lower than many analysts prefer.
Chief Executive John Stumpf said the bank will "return to a more normalized dividend level" as soon as practical and plans to repay the $25 billion it took from the government’s Troubled Asset Relief Program "at the earliest practical date."
Executives were not immediately available for further comment, spokeswoman Melissa Murray said.
Wells Fargo also said its integration of Wachovia Corp., which it bought for $12.5 billion on Dec. 31, is on track, and it still expects $5 billion of annual cost savings. It said merger-related costs should be lower than it expected.
Shares of Wells Fargo rose 71 cents to $8.83 in premarket trading. They began the year at $29.48. (Reuters)
