NEW YORK (Reuters) - More U.S. banks are likely to reduce their dividends in 2008 to shore up capital, as they boost reserves for a growing number of soured loans, a Sanford C. Bernstein & Co banking analyst said on Wednesday.
"After freezing share repurchases, the next step for banks with higher than desired payout ratios would be to supplement Tier-1 capital with preferred stock issuances," he wrote. "Beyond that, dividend cuts are likely."
Each had a dividend yield above 4 percent on Tuesday, compared with a roughly 3.57 percent yield on a 10-year U.S. Treasury note. First Horizon and National City cut their dividends last month. St. Pierre said Bank of America, SunTrust and Wachovia also have sizable preferred issues outstanding.
St. Pierre said it was likely too early for investors to increase their exposure to mid-cap banks, adding the stock prices are not low enough, especially as bad loans increase.
(Reporting by Jonathan Stempel; Editing by Maureen Bavdek)
