Bank of America cuts its dividend
In a move widely anticipated for months by many analysts, Meredith Whitney amongst others, Bank of America has finally cut its dividend. Releasing its earning report two weeks early, BofA said it would cut the dividend 50%. I view the move as much needed because BofA needs to start husbanding cash in order to deal with the global credit crisis. The dividend will recoup $1.4 billion in cash for the firm.
However, the dividend cut was not the only bad news for shareholders. Earnings fell 68% to 15 cents a share, well below analyst estimates of 60 cents a share. The firm also announced massive dilution in that it is raising $10 billion in new capital.
Bank of America had overreached by maintaining its dividend and buying both Countrywide Financial and Merrill Lynch. It should have been obvious that the firm was taking on too much risk at a time when credit was deteriorating and it needed to have a stronger capital base. They have wasted billions in reckless acquisitions and posturing as king of the hill. At least they have realised the folly of their previous errors and are taking corrective action now.
Source
BofA earnings tumble, cuts dividend – Reuters
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About Edward Harrison
- Merrill – Bank of America deal 14 Sep 2008
- KeyCorp to raise $1.5 billion, cut dividend 50% 12 Jun 2008
- KeyCorp craters after dividend cut 12 Jun 2008
- S&P cuts ratings of big U.S. banks 2 Jun 2008
- S&P cuts HBOS counterparty credit ratings 16 Sep 2008
Hi Ed,
We all agree on the fact that BofA is gone nuts. The only thing is that we do not why!!
I have put some interesting info on my post here: The Creature of Bernankenstein