U.S. Bank parent slashes dividend 88% to conserve cash

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U.S. Bancorp today became the latest major bank to take an axe to its dividend, hacking the quarterly payout 88%, to 5 cents a share from 42.5 cents.

The move may not be a total shock to the market, but some investors obviously aren’t happy: Shares of the Minneapolis-based company, which has 561 branches in California, were down $1.59, or 13%, to $10.99 at about 11:10 a.m. PST. The stock is down 56% this year, slightly worse than the average big bank issue.

U.S. Bancorp CEO Richard K. Davis naturally tried to put the best face on the decision. ‘It is important for our shareholders to know that we are not reducing the dividend and preserving capital from a position of weakness, but from a position of strength and a desire to continue to invest in and expand our business,’ he said in a statement.

The cut, which will save the bank $2.6 billion a year, ‘will serve to fortify our capital base and ensure that our company can withstand the challenges facing the banking industry today,’ Davis said.

He also said the bank wasn’t pressured by federal regulators to pare the dividend.

But the decision comes as regulators have begun ‘stress testing’ major banks to determine whether they have enough capital to withstand a surge in loan losses if the recession deepens.

Banks that fail the stress test would be forced to raise more capital, either from private investors or from the government. Either way, that could dilute the ownership stakes of current shareholders.

On a conference call with analysts today, Davis said he was ‘not interested in any additional government support’ beyond the $6.6-billion infusion the bank received last fall under the Treasury’s Troubled Asset Relief Program, or TARP.

As for the government’s stress test, Davis said he expected the bank to ‘test well under the scrutiny by the regulators. . . . We have very strong operating earnings to cover what could be virtually a wide range of operating losses.’

Also on the conference call, the bank said its government-assisted acquisitions last fall of Southern California lenders Downey Savings and PFF Bank & Trust were ‘exceeding expectations.’

‘We are gaining new accounts, acquiring new deposits and making new loans’ via the Downey and PFF operations, Chief Financial Officer Andy Cecere said.

-- Tom Petruno