Wells Fargo Fortifies Itself By Cutting Dividends

Wells Fargo & Co. (WFC) shares advanced as much as 17% on Friday after the company joined other major banks by slashing its dividend payout to shore up capital as a buffer against future credit losses.

Wells Fargo lowered its quarterly dividend by 85% to 5 cents a share in a widely expected move that will help the fourth-largest U.S. bank save $5 billion annually. The company also said it plans $2 billion in additional cost cuts in 2009, starting in the second quarter, excluding job eliminations.

The San Francisco-based bank announced that its operating results in January and February had been ’strong’ as it made $59 billion in mortgage loans in the two months, up from $50 billion in the entire fourth quarter.

Although Wells Fargo has long been considered one of the stronger players in the banking sector, the stock has been slumping since the beginning of this year amid growing scrutiny from regulators and concerns over its once-strong balance sheet. The stock has lost a quarter of its value this week alone.

Today’s move might help Wells Fargo absorb more losses related to its acquisition of Wachovia Corp and repay the federal capital investment as soon as practical. The dividend cut will boost its tangible common equity ratio by 40 basis points.

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