Goldman’s Dividend May Get a Haircut, says Deutsche Bank

Will Goldman Sachs' (GS-NYSE) dividend payment be the next casualty of the credit crisis? Goldman might not have to raise capital, but a cut in the quarterly payment might be in the offing.

The credit crisis has turned into a capital crisis for the brokers; de-levering and capital injections are the order of the day. Goldman's stock has gotten off relatively unscathed, all things considered. But with the stock's valuation likely to remain under pressure due to regulatory concerns and peer group comparisons, among other issues, a cut in the quarterly payment might be the equivalent of a paper cut while their competitors heads roll all around them.

Goldman Sachs Group Inc., Citigroup Inc. and Bank of America Corp. may announce ``dramatic'' dividend cuts, according to a Deutsche Bank AG analysis of options trading and prices.

``The option market is pricing in a dividend cut for virtually every major U.S. financial services company,'' derivatives strategists Scott Weiner and Chris Hauck wrote.

Goldman, the world's biggest securities firm, may reduce its dividend by 26 cents to 9 cents, while Bank of America, the second-largest U.S. bank by assets, may cut its dividend by the same amount to 38 cents. Citigroup, the biggest U.S. bank, may cut its dividend by 23 cents to 9 cents.

Citigroup slashed its quarterly dividend by 41 percent in January to 32 cents a share, the first drop since the early 1990s. Goldman hasn't reduced its dividend since going public in 1999, according to Bloomberg data. Bloomberg

Is the methodology appropriate in this instance? Maybe not, but the quarterly payments are clearly an extravagance Goldman and the other financial concerns might want to consider temporarily suspending.

Goldman has bent, but will it break? Earnings out June 17th

A full or partial reduction in the dividend probably will not dramatically hurt Goldman’s stock, as it is a small part of the investment case, but points out the challenges facing the capital constrained brokers.

Goldman might be the best house in a bad neighborhood, but the roof is on fire. Shortsellers are swarming over the brokers, and would just as soon let the muthas burn a bit longer before covering.

Goldman, Citigroup Options Foreshadow Dividend Cuts
Bloomberg
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