UPDATE 2-PrivateBancorp to slash dividend by 87 pct, shares fall
(Adds details, analysts' comments; updates share movement)
March 5 (Reuters) - PrivateBancorp Inc (PVTB.O: Cotización), a Chicago banking company, said it will slash its quarterly dividend by 87 percent to enhance capital and liquidity, sending its shares down to their lowest in more than six years.
BMO Capital Markets analyst Lana Chan estimated that the dividend cut could save the company about $2.2 million annually.
Although a reprieve is expected in the first quarter, credit costs will rise for the remainder of the year, putting additional pressure on the company's capital, Chan wrote in a note to clients.
Fighting weak credit markets, the company posted a loss for the fifth straight quarter in January as it took a hit from a surge in provision for bad loans and big charge-offs in its residential development loan portfolio.
Sandler O'Neill analyst Daniel Arnold estimated savings of about $8.9 million in tangible capital on an annual basis from the dividend cut, and said it was the appropriate and prudent move considering the difficult environment.
"While PrivateBancorp's recent approval for $244 million in TARP funds should help to provide a capital cushion, the wildcard is whether or not the current capital levels will be strong enough to withstand further credit deterioration and support growth at the same time," he said in a note.
Slower revenue growth, higher expense levels, increased credit costs and shareholder dilution from another potential capital raise represent earnings headwinds for the company, Arnold said.
RBC Capital Markets' Jon Arfstrom said he is modestly surprised by the cut as the quarterly dividend was not a significant capital drag for the company and it may signal a more pressing need for capital sooner than expected. Continuación...