U.S. Bancorp cuts dividend 88 percent

NEW YORK (Reuters) - U.S. Bancorp slashed its dividend 88 percent on Wednesday, joining a slew of major U.S. lenders reducing payouts to preserve capital.

The eighth-largest U.S. bank cut its quarterly dividend to 5 cents per share from 42.5 cents, saving more than $2.6 billion a year. Prior to 2008, it had boosted its dividend for 36 straight years. The bank took $6.6 billion from the government's Troubled Asset Relief Program.

U.S. Bancorp joins Bank of America Corp , JPMorgan Chase & Co , Citigroup Inc , PNC Financial Services Group Inc and others in reducing or eliminating dividends since the credit crisis began.

"A dividend reduction is the least dilutive and most economical means of raising capital" and "a prudent response to our concerns surrounding the industry's capital adequacy given the uncertain economic environment," Chief Executive Richard Davis said on a conference call. He said the bank was "not directed" by anyone to lower the payout.

Peter Winter, a BMO Capital Markets analyst, wrote that even with the reduction, U.S. Bancorp could still use more capital, "especially in an environment with accelerated credit costs." He rates the bank "market perform."

Wells Fargo & Co remains the largest traditional U.S. commercial bank not to lower its dividend during the credit crisis. As of Tuesday's close, its dividend yield was 12.7 percent, close to U.S. Bancorp's 13.5 percent. Wells Fargo did not immediately return a call seeking comment.

Shares of U.S. Bancorp were down 97 cents at $11.61 in midday trading. The KBW Bank Index <.BKX> was down 1.35 percent.

Minneapolis-based U.S. Bancorp has weathered the credit crisis better than many rivals because its mix of businesses is less dependent on the health of the consumer.

Fourth-quarter profit nevertheless fell 65 percent to its lowest level since 2001, and the bank more than quintupled the amount set aside for credit losses.

Davis said the bank expects to keep building loss reserves but should perform "quite well" when, like other TARP recipients, it undergoes a government "stress test" to gauge its ability to handle a deep recession.

He also said U.S. Bancorp does not need new capital, and plans to pay back the TARP money "as soon as possible."

Chief Financial Officer Andrew Cecere said the bank should be profitable in the first quarter and the full year. Analysts on average expect profit per share of 28 cents for the quarter and $1.24 for the year, according to Reuters Estimates.

U.S. Bancorp has $265.9 billion of assets and 2,791 banking offices in 24 U.S. states.

(Editing by Maureen Bavdek and John Wallace)

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