CHICAGO, June 19 (Reuters) - Prices in the U.S. options market reflect expectations for a big dividend cut for SunTrust Banks Inc (STI.N) by as much as 47 percent, Deutsche Bank said on Thursday.
SunTrust options are trading at prices that imply the regional bank will slash its quarterly dividend to 41 cents from its last dividend of 77 cents, Deutsche Bank equity derivatives strategy group said in a note to clients.
The options market is also pricing in a dividend cut for PNC Financial Services Group Inc (PNC.N) to 53 cents, down 20 percent from the regional bank’s last dividend of 66 cents.
For regional bank BB&T Corp (BBT.N), the dividend is priced at 34 cents from 46 cents last quarter.
Deutsche Bank found in the days leading up to the dividend cuts announced by Fifth Third and KeyCorp that their option prices also showed signs of potential dividend cuts.
Fifth Third on Wednesday slashed its quarterly dividend to 15 cents per share from 44 cents. KeyCorp said last week it plans to lower its dividend in half to 18.75 cents per share.
Deutsche Bank said option market prices reflect expectations of substantial savings through dividend cuts in the financial industry.
Based on an analysis of 95 financial companies, the option market is pricing in dividend cuts that are expected to save banks about $22 billion a year, the note said.
Deutsche Bank said the option market’s expectations for dividends in stocks are embedded in the prices of their respective puts and calls.
“By comparing the prices of at-the-money puts and calls in stocks, we are able to back out their expected dividends,” said Christopher Hauck, a director in Deutsche Bank’s equity derivatives strategy group.
Shares in SunTrust and BB&T were both down more than 8 percent and shares in PNC were about 1 percent lower in mid-day trading on the New York Stock Exchange on Thursday. (Reporting by Doris Frankel; Editing by Tom Hals)