True North_

Canadian Banks Should Follow Dividend Cut Trend

The current recession/depression is challenging to predict. The banks will be loathe to cut their dividends, particularly when their base operations are still profitable. Certainly, none of them will want to be first. Even BMO, which has the highest yield (and whose dividend is now well outside management's expressed range), can maintain the payment level for the "predictable" future. As we have seen, however, future predictions are (to say the least) challenging to make. If the domestic (i.e., Canadian) business weakens significantly and the economic malaise extends longer than hoped (and it is all based on hope right now...), then they may not have a choice. Interesting times, to say the least.

The suggestion that cutting the dividend could lead to insolvency (Columbo, above), doesn't make much sense to me. It would make it trickier to raise common equity capital, but they've already tapped the markets in the last 6 months(and with pref share issuances). BMO cutting its dividend to (say) $0.30 - $0.40/quarter could shore up its capital quite handily, if needed. Watch second & third quarter results: if they deteriorate materially and the glimmer of recovery on the horizon remains distant, then you would do well to assume the dividend is significantly at risk.