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Banks Showing Some Dividend Potential

Despite the regulatory uncertainty, dividends are a hot topic. JPMorgan CFO Mike Cavanagh said last week that the firm is planning a "significant" dividend hike for the "early part of 2010." He said the bank may quintuple its annual payout of 20 cents per share to a range of 75 cents to $1.

U.S. Bancorp CEO Richard Davis said this past Wednesday that he is "well aware that the dividend is an important step in our shareholder focus." The bank's board is evaluating the timing and amount of a potential dividend boost, but expects to hold off until there is more capital guidance from the Fed. Davis said that if regulators don't provide more clarity by December, U.S. Bancorp may potentially raise dividends in following quarters.

State Street CEO Ron Logue also acknowledged on Tuesday that "the first big trigger point" for a decision will be new capital requirements. Once those issues are clarified, Logue said the firm plans to return to its former distribution rate of 20% to 25%.

The Fed's stress tests last spring required banks to maintain a Tier 1 risk-based capital ratio of at least 6% and a Tier 1 common risk-based ratio of at least 4% under severe economic conditions. Though future rules remain unclear, the first crucial step for banks looking to lure in dividend-focused investors is paying back TARP. Banks that accepted bailout funds were forced to restrict dividends, as well as stock buybacks and executive compensation, among other things.
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