Bank Dividends ?
Interesting dinner last with Martin Barnes of BCA, Scott Frew of Rockingham Capital, and Chris Whalen of Institutional Risk Analytics.
Its an interesting crew: Frew has been bearish for a long time, Barnes is a recent convert to the Bear camp, and Whalen has been unapologetic about forecasting a large number of bank failures. I was the lone bull at the table, thought Frew is longer than shor these days.
I see Frew and Whalen pretty often, but not together -- We don't do this often enough, and its a fun group -- we should do this more often.
One of the things we each discussed was "What is unknown by the bulk of Investors/Traders/Public."
The most interesting of the four of us was Whalen's comments: "Read the fine print -- The $250 billion bank recapitalization effectively ends divdiends. If they took the cash -- and they all needed it -- there are no divvies paid until the money is paid back. No common dividends, no preferred either (though they will accumulate)."
I had no idea . . .
~~~
UPDATE: October 24, 2008 5:45pm
Scott writes in:
Go to this link -- http://www.ustreas.gov/press/releases/hp1207.htm
-- at the bottom the Public Term Sheet.
Here’s the relevant section of the term sheet, Restrictions on Dividends:
Restrictions on Dividends:
For as long as any Senior Preferred is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking pari passu with the Senior Preferred, or common shares (other than in the case of pari passu preferred shares, dividends on a pro rata basis with the Senior Preferred), nor may the QFI repurchase or redeem any junior preferred shares, preferred shares ranking pari passu with the Senior Preferred or common shares, unless (i) in the case of cumulative Senior Preferred all accrued and unpaid dividends for all past dividend periods on the Senior Preferred are fully paid or (ii) in the case of non-cumulative Senior Preferred the full dividend for the latest completed dividend period has been declared and paid in full.
So no dividends may be declared or paid on junior preferred, preferred ranking pari passu with the Senior Preferred, or common shares. … unless (i) in the case of cumulative Senior Preferred all past dividends are fully paid, or (ii) in the dase of the non-cumulative Senior Preferred etc etc.
Note no (iii) in the case of the common.
Pretty cut and dried. Chris is dead on here, and for the record, I knew this from Joanie’s (McCullough) work. Just so you have the full story, the next paragraph addresses common dividends, and reads as follows:
Common dividends: The UST’s consent shall be required for any increase in common dividends per share until the third anniversary of the date of this investment unless prior to such third anniversary the Senior Preferred is redeemed in whole or the UST has transferred all of the Senior Preferred to third parties.
But Joanie’s take on this, with which I concur, is that it’s misdirection, an attempt to hide what’s in plain sight in the paragraph above.
Friday, October 24, 2008 | 08:00 AM | Permalink
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Is their any link that confirms this...I was under the impression that the US plan was different than the European plan in this regard.
Posted by: Eric Sebille | Oct 24, 2008 8:15:41 AM
That is simply untrue. The plan says that the U.S. preferred must be paid in order for the other dividends to be paid. As long as the gov't is getting their dividends, everyone else can get theirs too. The plan had an "exception" section that explained that.
Posted by: Chad Brand | Oct 24, 2008 8:25:08 AM
Barry R U Sure (100%) on the Divvies ,, I thought they were frozen at current levels and could not be raised..... this NOT paid at all in cash and accrued is news to me!
Posted by: Jaym | Oct 24, 2008 8:28:28 AM
Simply untrue and this was gone over by Steve Liesman who specifically asked treasury sources about this. They confirmed that dividends can still be paid. It is only if the companies fail to make the dividend payments to the feds that other dividends would be impacted.
Posted by: bill | Oct 24, 2008 8:30:37 AM
The only thing I heard from Congress is that they can not use the gov't money to pay dividends.
There is nothing I know of that says after gov't dividends are paid common dividends can't be paid after that.
Posted by: John Borchers | Oct 24, 2008 8:34:05 AM
Anyone know what the limit down is for a single Nasdaq or NYSE stock before it gets halted?
Posted by: John Borchers | Oct 24, 2008 8:45:02 AM
Barry, is filled with Typo's this morning, Sounds like he is a little nervous.
We have Created the "Great Depression" MEME. Time to live with it.
good luck everyone.
Why buy till it's priced in, we need to De-leverage all these hedge funds treating the market like It's Las Vegas. It's not a sustainable model.
We have sorted out most the Ibanks, And they have finally started Laying people off. Time to make the Hedgies as Scarce as Spotted Owls. "Who wants to be on WallStreet. It's filled with losers with no ability to risk manage."
"Hedge fund"? What is that? They are Twice as useless as I-Banks.
Hedgies need to start sounding like the I-Banks "We didn't understand that the Business cycle applied to us"
Who needs to pay 2% to lose money like this..I'd say 2 and 20... but.... LOL.
Then we can pull everyone's credit cards Repossess some Cars and ATV's and finally this can be over.
Posted by: Eric Davis | Oct 24, 2008 8:48:24 AM
No limit on any NYSE or NASDAQ stock...
Posted by: no name | Oct 24, 2008 8:53:40 AM
"May you live in interesting times" Did a banker say that?--LOL
Posted by: gunthestops | Oct 24, 2008 8:54:45 AM
Is this irrelevent because there wont be profits for a long time?
Posted by: estaban | Oct 24, 2008 8:55:16 AM
Read the fine print...Treasury consent is required for any increase in common dividends per share...see public term sheet:
http://www.ustreas.gov/press/releases/reports/document5hp1207.pdf
Posted by: Bradley Anderson | Oct 24, 2008 9:01:43 AM
I WISH it was true.
Lets face it, if a bank has capital issues, there is NO reason for it to have a dividend at all.
No increase in dividend without treasury approval is not the same.
Posted by: Nicholas Weaver | Oct 24, 2008 9:41:19 AM
Limit downs? Circuit breakers? What the hell are you Communists talking about? CNBC is talking to a guy with a bow tie about good BUYING opportunities. The Asian and European markets were down 8- 9 percent, but we Americans are superior. No need ever to look at economic data or pay attention to basic economic theory, the guy with the bow tie said BUYING opportunity.
Erin Burnett looked really nervous at the beginning, but the little buckaroo is chipper now that CNBC was able to find two people to utter the words "BUYING opportunity".
Happy days are hear again...
Posted by: CNBC Sucks | Oct 24, 2008 9:44:56 AM
Yeah, this is simply untrue. I like IRA's stuff, but if he can't understand that very clear section of the term sheet (which KBW and other firms distributed widely in addition to it being posted on the Treasury website), that's a bit disconcerting for his analyses.
Posted by: Yawner | Oct 24, 2008 9:50:05 AM
the gov't dividend is the priority, then after that is paid, regular dividends may be paid with what's left over. dividends may NOT BE INCREASED until after the Gov't is paid back.
Posted by: jswede | Oct 24, 2008 9:52:11 AM
Probably great bottom call by BR this morning by positing the circuit breaker points.
I've already bought positions. Not nearly as low as I figured but probably good enough.
I feel totally confident in my positions. GLW, GRMN and LOW
Posted by: John Borchers | Oct 24, 2008 9:58:33 AM
Interesting crew indeed, but unaware of the facts. This is not true.
Posted by: anon | Oct 24, 2008 10:04:43 AM
As a shareholder of STT i am definitely not liking this comment. But then if STT stop paying out dividends ( which by the way are adequately covered per last quarter's filing) I might have to sell :-(
Dividend Growth Investor
Posted by: Dividend Growth Investor | Oct 24, 2008 10:07:00 AM
Roubini sees a global train wreck dead ahead again. Now he is predicting market closures soon around the world for a week or so. Does anyone think such a closure would result in a rally on the reopen? Or would there be a rush to sell if people were unable to get their money out of equities for an entire week?
I am short via QID, SMN, EEV, DUG, and TWM, so I am trying to decide whether to hold through a closure or get out now before it happens.
TIA for any comments.
GLTA.
Posted by: KJ Foehr | Oct 24, 2008 10:11:50 AM
BR Let's talk about AIG. It seems to me that the government bailout of AIG has turned into a bailout of the CDS market. The 120 billion is almost all gone, gone to their CDS obligations. What's going to be left, no much. Why not take AIG into receivership & split the company between regulated (insurance) & unregulated (everything else) & let the CDS world suffer.
Posted by: steve | Oct 24, 2008 10:15:03 AM
Money is fungible. They can't very well tell the banks how to *spend* it.
State Street is using the money to pay bonuses.
Posted by: CaptiousNut | Oct 24, 2008 10:15:43 AM
Barry, don't leave this one out there without backing. That would be huge, huge, huge. I hope your friend is wrong, wrong, wrong.
By the way, what do you think about Bill Clinton for Treasury Secy.? Bob Rubin once told me that he was the only guy smarter than Summers.
Posted by: Stav | Oct 24, 2008 10:20:03 AM
If you want some more perspective, read "An Unexpected Tale" at www.financialtales.com
Posted by: Rico Lico | Oct 24, 2008 10:24:36 AM
"What is unknown by the bulk of Investors/Traders/Public."
How much of Obama's insane ecomomic policies will be passed by congress.
Posted by: Tom K | Oct 24, 2008 10:38:07 AM
Man there seems to be great value selling puts today, I am selling GE november 15 puts at .95. I have no problem holding ge at a cost of 14.05..if I lose money on this trade we will have big problems. Man Mark Hanes is annoying..he is becoming more annoying than Cramer.
Posted by: Eric Sebille | Oct 24, 2008 10:55:07 AM
