MNC Financial Inc., providing stark testament to its need to conserve capital, said yesterday that it would not pay dividends on its common or preferred stock for the fourth quarter.
The decision, which would save the financially troubled company slightly more than $25 million, marked the first time in a quarter-century that MNC not only had cut its payout to shareholders but also had not increased it during the year.
The region's largest banking company also cast doubt on the payment of future dividends, noting that would depend on a number of factors, including the approval of federal regulators and the fate of the company's slumping financial condition.
The suspension of dividends on all MNC stock was dictated by the company's decision not to pay the quarterly dividend on the company's outstanding preferred shares, a move that saves the company only about $450,000 for the quarter, according to figures provided by MNC.
But, because MNC's corporate charter prohibits the payment of a common dividend unless the company has paid all required dividends on its preferred shares, MNC also said yesterday that it could not pay the fourth-quarter dividend on its common stock.
Based on the 85.5 million common shares outstanding as of Sept. 30, the move to abolish the 29-cent a share payout would save the company about $24.8 million.
It was unclear how many MNC stockholders live in Maryland, but about 20 percent of the company's shares are held in the state.
Yesterday's decision by MNC, parent of Maryland National Bank and American Security Bank in Washington, came as little surprise to analysts who track the company and the banking industry.
Throughout the Northeast and the mid-Atlantic region, banks are cutting dividends and announcing layoffs as means of slashing expenses and conserving much-needed capital. Federal banking regulators have also increasingly complained about banks' continuing hefty dividends to shareholders while failing to earn as much as they are paying out.
MNC's situation is typical of many of the companies as they search for ways to absorb losses brought on primarily by an increasing burden of bad real estate loans.
At the banks themselves, the need to build a reserve against those troubled loans has pushed capital levels precariously below the amount required by federal regulators. Investors' nervousness has prompted the bank holding companies to repurchase billions of dollars in debt while confronting a market unwilling to lend the companies more money.
Given the increasingly difficult environment, then, few analysts expected MNC to maintain its dividend at current levels.
At the time MNC said it lost $173 million, or $2.05 a share, for the third quarter, the company also announced it had signed agreements with federal regulators that required it to receive prior approval for a number of things, including the payment of dividends.
An MNC spokesman, Daniel G. Finney, declined to comment on whether yesterday's move came at the insistence of regulators.
MNC, which announced the dividend cut after the market closed yesterday, was unchanged for the day at $3.375 a share.
John A. Heffern, a banking analyst at Alex. Brown Inc., said the stock should be little affected by yesterday's announcement when it begins trading Monday. Sitting well below its 52-week-high of $23.375 a share, MNC's stock price already includes the expectation of yesterday's move, he said. "The stock's trading below four. That discounts for a lot," he said. "This should not come as a surprise to the market."
With an increasing burden of bad loans, losses and upcoming debt payments looming for MNC, yesterday's move was seen as further evidence that the company was attempting to preserve as much cash as possible.
Among other things, MNC is required to purchase $271 million in debt Jan. 15 and $275 million more in early February. The company already has announced plans to shed a number of profitable subsidiaries to help meet the deadlines, but few have been completed.
Yesterday's decision affects 980 shares of non-voting convertible preferred stock, which was paying an annual dividend of $11.25 a share, and two series of adjustable-rate preferred stock that were issued to exchange the preferred shares of Equitable Bancorporation when the two banking company's merged in January. The two series of adjustable-rate preferred stock were paying total dividends of about $1.8 million a year, Mr. Finney said.