Is The Fed Dividend Warning Killing Wells Fargo And US Bank Today?

Two of the companies that were on just about everyone's list of banks most likely to hike their dividends are getting absolutely crushed Friday.


US Bank and Wells Fargo both saw their stocks rise, after news came out late last week that the Federal Reserve was preparing guidelines that would permit healthy banks to raise dividends in the first quarter of 2011. Today, the situation has reversed, with shares of both banks dropping more sharply than most of their rivals.

Of course, it's always a foolish game to attribute causality to the moves of any stocks. But the price action today has us tempted to this foolishness.

There hasn't really been any news on either stock. Instead, what seems to have happened is that a Fed governor issued a warning that the Fed's dividend guidelines would have a conservative bias. Everyone is now interpreting this to mean the Fed thinks the market had gotten a little ahead of reality when it comes to dividends, so it decided to issue a warning now.

Citi and JPMorgan are down today also. But their declines simply reflect the slight sell-off across the broader market. Bank of America is fairing worse. But the two alleged dividend powerhouses, US Bank and Wells Fargo, are really suffering.

*Update 1:28* Well, that was fast. Right around the time we published this, shares of Citi took a plunge. Meanwhile, shares of US Bancorp and Wells Fargo recovered a bit. So it looks like JP Morgan is the only one of the banks we mentioned that is not suffering on the dividend news.


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