U.S. Bancorp Dividend Cut: Anything but TARP

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 |  Includes: AIG, BAC, C, JPM, USB
by: Casey Mulligan

U.S. Bancorp (NYSE:USB) took $6.6 billion in TARP funds in 2008. At the same time, it maintained its dividend (continuing a 75-year tradition of maintaining or raising it).

This month U.S. Bancorp announced that it would give the TARP money back to the Treasury. How will the bank replace it? By cutting its dividend for the first time in at least 75 years!

It is not a coincidence that U.S. Bancorp cut its dividend at the same time that it repaid the TARP money. I explained last fall how Treasury "capital injections" just result in greater payments to bank industry shareholders. One (of many ways) it could work is that a bank that had become less profitable during this recession would either cut its dividend in the absence of Treasury funds, or (as with TARP recipients like U.S. Bancorp) use the Treasury funds to maintain the dividend it had prior to the recession.

The same argument implies that payments from a bank TO the Treasury would reduce payments to bank industry shareholders. That's what we see with U.S. Bancorp.