NEW YORK (
) -- With many large U.S. bank-holding companies in a strong capital position and boosting profits by releasing loan loss reserves, it's only a matter of time before regulators relent and the banks begin to increase dividend payouts and buy back shares.
"If there was anything I was disappointed in third quarter, it was dividends. I was hoping we would have more word on them," said Fred Cannon, an analyst at Keefe, Bruyette & Woods. "Nobody is yet ready to increase their dividends due to regulation."
Richard Bove, an analyst with Rochdale Securities, was was not surprised by the lack of third-quarter dividend announcements. "I really had no expectations. Banks are controlled by bank regulations and they are going to have to get approval to increase their dividends."
is supposedly preparing guidelines that would gauge which banks are strong enough to boost dividends or buy back shares. This move, says Bove, is a step in the right direction and could show the Fed's confidence in the financial industry's health. He believes that regulators are likely to let banks increase dividends and he expects that capital requirements won't be as stringent as many expect.
"If you think about QE2, it requires different attitudes. By allowing banks to pay out dividends, banks will be putting money into the economy," said Bove.
Cannon and Bove have given their thoughts on which banks are likely to be the first to increase their dividend payouts. Between the two analysts, the list includes 10 large bank holding companies.
One of the holding companies listed by Bove as likely to increase dividends during the first quarter is
M&T Bank Corp.
(MTB - Get Report)
which agreed last week with a deal to acquire
for about $351 million in stock, in a deal expected to close by mid-2011.
M&T owes the government $600 million in bailout money received through the Troubled Assets Relief Program (TARP) and will assume responsibility for the $330 million in TARP money owed by Wilmington Trust.
Since the company's agreement with the U.S. Treasury Department for the TARP money "contains limitations on certain actions of M&T, including the payment of quarterly cash dividends", M&T will need to repay TARP before raising the dividend.
Marty Mosby of Guggenheim Securities said that M&T is "one of the stronger banks, and they are performing well. But given their recent acquisition announcement, and still owing TARP, they would be later in the cycle" in announcing a dividend increase, he said.