Signet Banking Corp., citing reduced earnings brought on by the slumping real estate market, cut its dividend in half yesterday, to 20 cents a share.
The Richmond, Va.-based parent of Signet Bank/Maryland said that the board's vote was an acknowledgment that the banking company is unable to earn as much as it was paying to shareholders each quarter.
While Signet expects to be profitable for the first quarter, the company said profits would not be "at a level sufficient to maintain its dividend at the former rate."
With yesterday's action, Signet became just the latest large banking company to slash its dividend in the wake of the industry's drubbing last year, when real estate loans soured and bank profits plunged.
Recent months have brought similar moves by such large banking companies as MNC Financial Inc., Citicorp and other East Coast and money-center banks that have had profits disappear and stock prices plummet in the past year.
The widespread dividend cuts have come as federal regulators increasingly have sought to restrict the industry from paying shareholders more in cash each quarter than the companies were earning.
As the ability of banking companies to raise additional capital from outside investors has virtually disappeared, conserving their dwindling earnings has been seen as one of the only ways to help preserve their financial health.
"While our capital ratios are among the highest of banking organizations in our size range, we were reluctant to erode our strong capital position by retaining the same level of dividends at a time when we are experiencing reduced levels of earnings," Robert M. Freeman, chairman and chief executive, said. The new dividend is payable April 25 to stockholders of record April 5. Signet had been paying 39 cents a share on its 26.5 million shares outstanding.
Signet, traded on the New York Stock Exchange, closed yesterday at $13.125 a share, up 75 cents a share. Yesterday's move by Signet had been expected by most analysts who were watching the bank's yield -- the amount of the annual dividend expressed as a ratio of the stock price -- rise to the top of the local industry. Based on its former annual payout of $1.56 a share, shareholders were receiving more than 12 percent of the current stock price in annual dividends.
"The yield was telling you they probably would" cut the dividend, said Elisabeth Albert Hayes, a banking analyst with Chapin, Davis & Co. "Nearly every bank which was seeing a rise in [problem loans] has been doing the same."
Signet, which has $11.5 billion in assets, has 234 banking offices in Virginia, Maryland and Washington.
Last year, the company, hurt by a nearly threefold increase in troubled loans during the year, earned $41.4 million, or $1.56 a share, compared with a profit of $123.3 million, or $4.55 a share, in 1989.
While the company paid out $1.56 a share last year -- the same amount as its earnings -- Mr. Freeman said Signet did not earn as much in the last nine months of the year as it paid to shareholders.