Wells Fargo cuts dividend by 85 per cent; sees additional savings of $2 billion in 2009

Wells Fargo & Co became the latest big American bank to slash its dividend as the economy's woes worsen, reducing the quarterly payout 85 per cent.

The San Francisco-based bank also said it plans $2 billion of additional cost cuts in 2009, starting in the second quarter. It did not say where they will come from. The bank said it has had "strong" operating results in January and February, and made $59 billion of mortgage loans in that period, up from $50 billion in the entire fourth quarter.

Howard Atkins, Wells Fargo's CFO, in a statement said the dividend reduction will create "a larger capital cushion in the near term to protect against a more adverse credit cycle if it occurs."

He said the savings should increase Wells Fargo's ratio of tangible common equity to tangible assets, a key measure of financial strength, by four-tenths of a percentage point. The bank said the ratio was 2.86 per cent as of 31 December. Wells Fargo's ratio is lower than many analysts prefer.

Shares rose 5.7 per cent in pre-market trading to $8.68. The stock through Thursday was down 72 per cent this year.

The dividend cut to 5 cents a share from 34 cents per share will save the banking giant, some $5 billion a year. It follows a series of payout cuts started by JPMorgan Chase & Co as executives are feeling pressure to reconsider their dividend defence as stock prices fall and the market puts a greater premium on capital preservation. PNC Financial Services Group Inc and US Bancorp have also followed suit.

But some had been calling for Wells Fargo to cut its dividend in the wake of purchasing Wachovia, which was forced to sell out amid a mountain of bad loans. Wells Fargo, which received $25 billion from the government last year and raised an additional $13 billion in a share offering, had resisted such a dividend cut. (See: Wells Fargo-Wachovia merger completed).

Although doing so was "very difficult," president and CEO John Stumpf said on Friday the move was "absolutely right for our company and our shareholders because it will further strengthen our ability to grow market share and to continue our long track record of profitable growth." A more-normal dividend will return "as soon as practical."