Regional Banks Still Struggling to Boost Dividend Payments

   Investors have been shifting their attention to the financial sector this week as remarks from the Government have raised hopes that stronger banks will soon be able to hike their dividends or buy back shares. Dividend paying companies have become very popular as obscenely low interest rates have made bond returns less appealing. Before the financial crisis, many regional banks were a reliable source of dividends, but by mid-2009 these banks had substantially reduced, or altogether cut, their dividend payments. While stronger banks are likely to begin boosting their dividends in early 2011, there are fears that the new and stricter regulatory guidelines will continue to make it challenging for Regional Banks to boost their dividend payments. The Bedford Report examines the outlook for companies in the Regional Banking Sector and provides research reports on Regions Financial Corporation (NYSE: RF) and Marshall & Ilsley Corporation (NYSE: MI). Access to the full company reports can be found at:

www.bedfordreport.com/2010-11-RF

www.bedfordreport.com/2010-11-MI

The Fed made it very clear that banks would have to "demonstrate with great assurance that they could achieve the ratios required by the Basel III framework" in order to be eligible for dividend increases. According to the Basel Committee on Banking Supervision, Basel III will set a tougher standard for the quality of capital as well as the assessment of risks on a bank's balance sheet. According to the proposals under Basel III, only if a bank operating in a steady economic environment maintains a Tier 1 capital ratio of 12% would it be allowed to pay or increase common dividends. While regulators are still in the process of adopting Basel III, the most recent quarter's capital ratios provide useful clues as to which banks are most likely to comply with the new standards.

The Bedford Report releases regular market updates on the Regional Banking Sector so investors can stay ahead of the crowd and make the best investment decisions to maximize their returns. Take a few minutes to register with us free at www.bedfordreport.com and get exclusive access to our numerous analyst reports and industry newsletters.

The Fed also explained that banks which have yet to repay the government bailout money received through the US Treasury Department's Troubled Assets Relief Program (TARP) will not be allowed to increase their dividend payments. This will disqualify many Regional Banks. Regional Banks have struggled to return to profitability following the financial crisis largely due to a weaker-than-expected rebound in loan demand.

Both Marshall & Ilsley and Regions Financial would be barred from hiking their dividends under the current circumstances as the companies still participates in TARP. Coincidentally both companies presently pay a meagre 4 cent annual dividend.

Marshall & Ilsley received a $1.7 billion capital infusion under TARP, and the company says it plans to start repaying the company's TARP debt in late 2011 and will not begin rebuilding M&I's common stock dividend until 2013.

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