In July Wells Fargo Increased Dividend 10 Percent.

“This increase, which reflects the Company’s performance and our confidence in its long-term growth, is possible because of our time- tested vision and values, diverse business model and our talented team that collaborates so well as One Wells Fargo to satisfy all our customers’ financial needs,” said Chief Financial Officer Howard Atkins. “Wells Fargo is one of only a few financial institutions that have continued to increase its annual dividend, which now exceeds $4.5 billion.”

Yesterday Wells Fargo raised $2 billion in a bond offering proving the dividend hike was noting but a sham. Minyanville’s Mr. Practical was all over the story today.

Let’s tune in to what the ever practical Mr. Practical has to say.

Sham Revealed

Yesterday Wells Fargo (WFC) raised $2 billion in a bond offering. The cost of the capital? 9.75%. When the top rate it can lend at is 6% the only way it can make money on this capital is to lever it…. increase the risk.

I ask you, why would a company that just raised its dividend go out and raise dilutive capital (the cost of the capital will be a drag on earnings)? Since the only reason is to get capital ratios back in line, something a dividend cut might have done, we can clearly see that the dividend raise was a sham to make things look better than they are.

Financial companies are in worse shape, not better, than they were a few months ago. They desperately need to raise capital and anyone buying stocks at these levels is taking a huge risk that they will be caught in the middle of that process.

Risk is high.

Every column of Mr. Practical is an excellent read. Click on that link to see what Mr. P. has been writing about.

Mike “Mish” Shedlock
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