U.S. Bancorp Dividend Cut: Anything but TARP

U.S. Bancorp (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.

Comments

[Toeser:]

"It is not a coincidence that U.S. Bancorp cut its dividend at the same time that it repaid the TARP money."

The TARP money has not been repaid. The government will not allow the funds to be repaid until stress tests have been finished. My concern is who is stress-testing our loser government?

Mar 23 08:02 AM

[greedcanbgood:]

Toeser - right on the money (pun intended)!

Here's the other problem that our wonderful government didn't consider: A number of institutions have been clear that they did not initially need the TARP funds. Once they start repaying early, the public will have a better handle (right or wrong) on who they think are stronger and weaker financial institutions. The result? A potential flight from institutions preceived to be weaker thus creating a self-fufilling prophecy.

Nobody knows how the stress tests will be "graded" and which benchmarks will be used in the various categories. Once again, the government creates the rules AFTER the fact.

Mar 23 10:27 AM

[jdstep:]

You failed to mention the fact that US Bank, along with the other banks that "took" tarp money had no choice but to take the money. US Bank and others did not want or need the funds!

Mar 23 03:02 PM

[toomuchgas:]

The sooner USB gets rid of the TARP the sooner they can restore their dividend.

Mar 23 04:16 PM

[User 381562:]

would't be nice for the stockholders if at the same time that the board decidedto cut the dividendmore than 80% they would have requested that all of the executives that were there while the earnings went into the tank be forced to take 50% cut in pay or resign !!!!!!!

Mar 23 04:52 PM

[Whodacrooks:]

Maybe one of the reasons USB wants to repay the money very soon is because of the 500,000 cap on executive salaries. All large corporate executives and directors have been looting the companies at the shareholder's expense for years. In addition, bonuses are more difficult to hand out if under the TARP microscope. I plan to get out of stocks completely as soon as possible until corporate executives and boards start working for the shareholders instead of themselves. Not very likely, I know.

Mar 23 06:39 PM