Merrill may go for first dividend cut
Merrill Lynch & Co CEO John Thain, battered by $19 billion of losses, vowed last week to maintain the firm’s 35-cent quarterly dividend.
By Agencies |
NEW YORK: Merrill Lynch & Co CEO John Thain, battered by $19 billion of losses, vowed last week to maintain the firm���s 35-cent quarterly dividend. The options market doesn���t believe him.
���The market is pricing in a significant cut, roughly 50 per cent or more,��� said Steve Sosnick, who trades options at Interactive Brokers Group in Greenwich, Connecticut, which handles a seventh of global equity options trading. A reduction would be Merrill���s first since it went public in 1971 and represent another reversal for Thain, 53, who told analysts he had plenty of capital two weeks before last month���s record $9.8 billion stock offering. The sale lifted the burden of quarterly payouts by boosting shares outstanding by half.
The company has paid 35 cents a share since the first quarter of 2007, when Merrill���s board raised it from 25 cents. The board reaffirmed the payment on July 30. Yet a reduction to 18 cents for the fourth quarter is reflected in the market, Bloomberg data show. The data compare prices for different Merrill options and apply formulas commonly used by traders to reflect the probability and timing of dividend payments.
Merrill, the third-biggest US securities firm by market value, has the highest dividend yield among peers, at 5.5 per cent. The yield moves inversely to the stock price, which has tumbled 52 per cent this year to $25.60. A Merrill spokeswoman declined to comment. Goldman Sachs Group, the biggest US securities firm, pays a 0.9 per cent dividend yield, while No. 2 Morgan Stanley pays 2.7 per cent and No. 4 Lehman pays 4.4 per cent.
���The market is pricing in a significant cut, roughly 50 per cent or more,��� said Steve Sosnick, who trades options at Interactive Brokers Group in Greenwich, Connecticut, which handles a seventh of global equity options trading. A reduction would be Merrill���s first since it went public in 1971 and represent another reversal for Thain, 53, who told analysts he had plenty of capital two weeks before last month���s record $9.8 billion stock offering. The sale lifted the burden of quarterly payouts by boosting shares outstanding by half.
The company has paid 35 cents a share since the first quarter of 2007, when Merrill���s board raised it from 25 cents. The board reaffirmed the payment on July 30. Yet a reduction to 18 cents for the fourth quarter is reflected in the market, Bloomberg data show. The data compare prices for different Merrill options and apply formulas commonly used by traders to reflect the probability and timing of dividend payments.
Merrill, the third-biggest US securities firm by market value, has the highest dividend yield among peers, at 5.5 per cent. The yield moves inversely to the stock price, which has tumbled 52 per cent this year to $25.60. A Merrill spokeswoman declined to comment. Goldman Sachs Group, the biggest US securities firm, pays a 0.9 per cent dividend yield, while No. 2 Morgan Stanley pays 2.7 per cent and No. 4 Lehman pays 4.4 per cent.
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