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.
The analyst, Kevin St. Pierre, wrote that the Tier-1 capital ratio, which measures the ability to cover losses, declined at nearly 90 percent of large U.S. banks in the second half of 2007. Many banks also temporarily stopped share buybacks to boost capital.
"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."
St. Pierre wrote that among banks with "the potential for high payout ratios and thin capital cushions," those at higher risk for dividend cuts include Bank of America Corp
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.
Banks appearing at low risk of dividend cuts, the analyst wrote, include Bank of Hawaii Corp
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.
He said investors seeking exposure might focus on Capital One, Marshall & Ilsley Corp
(Reporting by Jonathan Stempel; Editing by Maureen Bavdek)
