In a move widely anticipated for months by many analysts, Meredith Whitney amongst others, Bank of America has finally cut its dividend. Releasing its earning report two weeks early, BofA said it would cut the dividend 50%. I view the move as much needed because BofA needs to start husbanding cash in order to deal with the global credit crisis. The dividend will recoup $1.4 billion in cash for the firm.
However, the dividend cut was not the only bad news for shareholders. Earnings fell 68% to 15 cents a share, well below analyst estimates of 60 cents a share. The firm also announced massive dilution in that it is raising $10 billion in new capital.
Bank of America had overreached by maintaining its dividend and buying both Countrywide Financial and Merrill Lynch. It should have been obvious that the firm was taking on too much risk at a time when credit was deteriorating and it needed to have a stronger capital base. They have wasted billions in reckless acquisitions and posturing as king of the hill. At least they have realised the folly of their previous errors and are taking corrective action now.
BofA earnings tumble, cuts dividend – Reuters
Countrywide to Set Aside $8.4 Billion in Loan Aid – Deal Book