(Adds analyst’s comment, background; updates share movement)
BANGALORE, March 5 (Reuters) - Wells Fargo & Co (WFC.N) does not need to cut its dividend from an operating standpoint, veteran analyst Richard Bove said, but added that the real problem was loan losses.
Wells Fargo shares fell 16 percent to $8.07 in afternoon trade on the New York Stock Exchange.
The market has already assumed that the bank will cut its dividend, the Rochdale Securities analyst told Reuters by phone.
“I can’t tell you for certain that the dividend is not going to be cut, all I can tell you is that if one looks at the operating business of the bank then one has got to come away with the thought that the dividend doesn’t have to be cut,” Bove said.
Many analysts expect Wells Fargo to cut its $1.36 per share annual payout, which is higher than the company’s expected earnings for 2009.
Wells Fargo remains the largest traditional U.S. commercial bank not to have lowered its dividend during the credit crisis.
“You’ve got two issues. Is the bank healthy enough to pay the dividend? I think the answer to that is yes. Is the bank likely to be pressured into reducing its dividend? The answer to that is I don’t know,” Bove said, noting that the U.S. government had forced a number of banks to reduce their quarterly dividend to 1 cent per share.
“Wells Fargo is going through a Citi-like situation wherein the company takes actions dictated by the market rather than those necessary,” Bove said.
Wells Fargo’s dividend payout has been the subject of much speculation as financial institutions have slashed dividends to preserve capital.
Dozens of U.S. lenders, including Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and U.S. Bancorp (USB.N), have reduced or eliminated dividends to preserve capital for covering rising credit losses.
Analyst Bove said he expects loan loss provisions at the bank to stay “very very high,” adding that the real problem was the bank’s loan losses.
“The issue is will this bank have so many loan losses that it doesn’t matter what is occuring in the core business,” Bove said.
Moody’s late on Wednesday said it may cut its ratings on Wells Fargo, warning that losses from assets it took on from its acquisition of Wachovia will hurt its capital ratios.
Bove, however, said the core elements of the company’s business is getting better, not worse.
“The company is increasing its deposits, it has increased its market share in every major loan market. It’s net interest margin is improving,” he said. (Reporting by Tenzin Pema in Bangalore, Editing by Dinesh Nair)