In an announcement today, Wells Fargo & Co. said it will slash its dividend by 85%, beginning in April. The move is intended to save the company $5 billion over the next fiscal year.
The dividend per share will be cut from 38 cents to 5 cents, as JP Morgan Chase did in January. Although this is a substantial cut, recent dividend cuts at other large banks have been even more drastic: both Bank of America and Citigroup have cut their dividends to 1 cent.
Although other banks have seen their share price drop sharply upon announcing dividend cuts, Wells Fargo stock rose by 6.03% today to close at $8.61 a share. This is in the face of 1-day declines across the financial sector. While this reaction may mean that investors have grown used to dividend cuts, Wells Fargo buffered the cut with more encouraging announcements. The bank revealed figures suggesting that its mortgage lending operation remains strong and is continuing to grow, and it announced an intention to repay, as soon as possible, the $25 billion in federal bailout funds the bank has received.
Observers worry that the bank’s merger with Wachovia, described by Wells Fargo CFO Howard Atkins as “proceeding as planned and on track,” may lead to larger-than-expected mortgage-related losses in future quarters. However, Atkins stated that Wells Fargo had already taken the bulk of those losses in prior quarters, and therefore the bank’s future earnings would be higher and common equity would also grow more quickly.
President and CEO John Stumpf said the bank would return to a normal dividend payment as soon as possible. “We have among the most loyal shareholders in America, individuals and institutions alike,” he said, “and we’ve always recognized the value of dividends.”