Are bank stocks safe?

U.S. bank dividends called into question

Excerpt:

NEW YORK, Nov 2 (Reuters) - Fallout from the subprime mortgage crisis is raising questions about whether banks can maintain their common stock dividends, a key reason many shareholders invest in the sector in the first place.

A much-discussed analyst report this week questioning whether Citigroup Inc (C.N: Quote, Profile, Research) can afford its 54 cents per share quarterly dividend added the largest U.S. bank to a growing mix of lenders whose dividend-paying ability has been questioned.

Rising loan losses and debt write-downs and fears there will be more, have depressed bank stocks and driven up dividend yields, the ratio of the annual dividend to the stock price.



Citi board gathering for emergency meeting: WSJ


The stock dropped especially hard on Thursday, when analysts at CIBC sparked concern the bank may have to cut its dividend to preserve capital. See full story.
Prince has been under pressure to improve the bank's performance, even before the credit crisis this summer.

Two weeks ago, Citi reported a 57% drop in third-quarter net profit two weeks ago due to recent write-downs for bad loans and other credit issues.

Comment: You may think it doesn't matter, but if you invest in mutual funds or a stock index fund, major banks like Bank of America, Citibank, Wells Fargo, etc are in the mix! Subprime issue comes home to roost!

C vs WFC chart

FT: Banks hit again as credit fears spread

Excerpt:

Despite a surge in US employment growth last month, investors remained worried that banks and other financial institutions still faced heavy losses arising from the troubled US mortgage market and related securities.

Market expectations that the impact of these losses on the broader US economy could spur the US Federal Reserve to cut interest rates further drove the dollar down to a new low against euro. The dollar’s slide in turn helped drive gold to a 28-year high of more than $800 an ounce and oil above $95 a barrel.

Andrew Wilkinson, analyst at Interactive Brokers, said: “A daisy chain of market reports predicting continued writedowns and runaway credit losses” at the biggest banks and brokerage firms hit investor sentiment.

Comment: Could this also spur a major bank merger?