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March 4 (Reuters) - A dividend cut will be a prudent measure for Capital One Financial Corp (COF.N), as it will help the bank to preserve capital and reduce the risk of a dilutive capital raise, Credit Suisse said, while resuming the coverage of the bank with a "neutral" rating and a $15 price target.
"We believe that capital preservation today is more important and current earnings are unlikely to support the current dividend until at least 2011," analyst Moshe Orenbuch said in a note to clients.
Orenbuch said he does not expect Capital One to organically increase its tangible common equity in 2009, given low level of earnings and high dividend payout.
He said the bank may fair well under the regulatory stress test, as its year-end assumptions are generally consistent with the regulatory inputs for the test.
However, the analyst remains concerned over Capital One's credit quality, as he expects credit card losses to worsen faster than the industry throughout 2009 as a result of implementation of minimum payment guidelines.
Last month, Capital One said defaults on its U.S.-issued credit cards rose as unemployment soared, triggering fears that the bank could slash its dividend and sending its stock down to the lowest level in nearly 13 years.
In January, the firm, one of the largest issuers of MasterCard and Visa credit cards, posted disappointing quarterly results and forecast more credit losses in 2009 as debt-burdened American consumers struggle with the highest unemployment rates in 16 years.
Shares of Capital One closed at $10.20 Tuesday on the New York Stock Exchange. (Reporting by Adheesha Sarkar in Bangalore; Editing by Anil D'Silva)