More companies to slash dividend: SVM

LONDON (Reuters) - More companies will cut their dividends in order to protect their balance sheets as the global recession deepens, a leading investor said on Wednesday.

Colin McLean, managing director of Edinburgh-based hedge and traditional fund boutique SVM Asset Management, also said he expects markets to once again test lows made in November.

"Dividends are going to be reset -- once it becomes fashionable to do that, more (companies) will do it. This is different from what we have seen in previous cycles," McLean said at the Reuters Hedge Funds and Private Equity Summit in London.

Falling earnings triggered by lower demand is forcing companies to rethink dividends paid to shareholders, who have traditionally attached high importance to these payments.

McLean said companies may have misread the investor mood, however.

"If you look at insurers who have maintained dividends thinking that investors are looking for stability (of dividends), where they are actually looking for assurance on capital adequacy, and paying less dividend gives them that assurance. A lot of companies have misunderstood this."

Mclean also said that as the overall economic outlook worsens, markets will once again fall back to lows seen last November.

"I don't think what we are seeing just now as a rally is different to the four or five (rallies) that we have seen last year."

BEARISH ON BANKS

McLean has been bearish on British and European banks for more than a year and sees more pain ahead for the sector, in spite of recapitalizations and improving capital markets.

"It still doesn't resolve the big balance sheet issues of the major banks, in particular Royal Bank (of Scotland) (RBS.L), Barclays (BARC.L), Deutsche Bank (DBKGn.DE), Citi (C.N) and UBS (UBSN.VX).

"Government support should see them through, but I do expect further recapitalizations in banks," he said, predicting that capital would mostly have to come from governments.

McLean said there was a lack of confidence among investors after the hits taken during the credit crisis, and he remained concerned about the size and quality of assets on banks' balance sheets, especially for more opaque assets that can be hard to value.

"It's easy to report profits without reporting the balance sheet, and so much of the balance sheet is level 3 (assets), which is really the cupboard we haven't opened," he said.

McLean said he holds HSBC (HSBA.L) shares but SVM, which has about 600 million pounds under management, was still net short the financial sector.

(Editing by Simon Jessop)