05 January 2008

Rough year ahead...

Investors May See Dividends Disappear
Saturday January 5, 4:24 am ET
By Stephen Bernard, AP Business Writer

Dividends in Financial Services Sector Likely to Be Casualties of Tightening Credit Markets--

With credit markets continuing their downward spiral, investors could see their dividends disappearing in 2008.<>Dividend cuts or suspensions will continue to pick up among financial services firms in 2008, said Howard Silverblatt, a senior index analyst at Standard & Poor's....Many investors rely on dividend payments as a source of income, and financial institutions in particular have been rich sources of large payouts. Their need to raise capital in the face of rising loan defaults, though, has made their dividends one of the first places they look to save money...

As a result of the rising defaults, investors have shied away from purchasing bonds and debt backed by the loans because of fears of mounting losses. As investors stopped buying the debt, banks and other holders of the bonds have been forced to write down their value.

The writedowns -- which eclipsed $100 billion in 2007 -- have strained earnings, forcing companies to look for new ways to raise capital and preserve cash.

Silverblatt said if the credit markets continue to deteriorate and the economy further weakens, the problem is likely to expand into other areas, such as the consumer discretionary sector.

full article here.

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