Bank of America Joins the Club of Shareholder Abusers
This week Bank of America announced that it was cutting its dividend payment in half. Mr. ToughMoneyLove is outraged by this action. It represents an abuse of shareholders like me who invested in Bank of America as a reliable dividend-paying stock and who stayed with the company while other banks were failing.
Some may question the legitimacy of my resentment. After all, the argument goes, Bank of America is suffering from severe loan losses just like the other banks. Cutting the dividend to shareholders is a way of preserving capital to improve its balance sheet going forward, after a severe drop in earnings. That argument makes sense on its face, but only if you ignore what else Bank of America has done in recent weeks.
What do I mean? In late 2007, Bank of America bought LaSalle Bank Corporation for $21 billion. Then, at the beginning of 2008, Bank of America “rescued” sub-prime giant Countrywide Financial by purchasing it for $4.1 billion. But that wasn’t enough. In the very midst of the current financial crisis, Bank of America reached deep into its pockets again and bought Merrill Lynch in a stock deal worth $50 billion. When I heard this news three weeks ago I thought BoA must be in relative great shape to be making deals of this magnitude. I did not suspect that a 50% dividend cut would soon follow. But note this from the BoA financial report:
“The weaker earnings were driven by higher credit costs resulting largely from two of its most recent acquisitions-Countrywide Financial Corp, which had been the country’s largest independent mortgage lender, and Chicago-based LaSalle Bank.”
So the BoA spending spree is now being blamed for the dividend cut. Frankly, that is ridiculous. Bank of America management is apparently much more interested in becoming the biggest player in the industry than it is in delivering consistent returns and value to shareholders, including in the form of dividends. And make no mistake about it – bank stocks have traditionally been favored as dividend plays by long term investors who can tolerate fluctuations in share price. Bank of America has shown that it doesn’t care about shareholders. Management’s thirst for expansion is being quenched by slashing dividends.
I am sick of this. My wife and I are long-time Bank of America customers as well as shareholders. That is now going to change, on both counts. It is time to move towards community banks.