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Joe Rodney
3 Comments
Next Week Is a Big One for Bank Reports
Bear's Gone - Is Lehman Next?
Wachovia's 'Poorly Timed' Deals Put Dividend at Risk
Many people out there have a tendency to paint every company in an industry with the same broad brush without drilling down into the details. The fact of the matter is that as of Year end 2007, WB was in much better shape than the rest of the subprime mortgage industry and many other banks in general. Its tier 1 capital adequacy stood at 7.2% and it total capital adequacy ratio stood at 11.5%, which are both well in excess of minimum requirements and even "desirable" levels. This means that WB "has sufficient capital in relation to risk sensitive assets to absorb any risk rises in the near term."
Nonetheless, increased write offs in Q1 can be expected as the economy continues to falter. Will this result in a dividend cut? I don't think so. Yes, earnings will be weak, and the dividend payout ratio for 2008 will be high. But a dividend cut will crater the stock and will cause investors to abandon ship. I don't think WB will want this to happen.