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Does anyone know if the Financial Sector dividend stocks are frozen at their current rates by edict of the Government of Canada?
 

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Does anyone know if the Financial Sector dividend stocks are frozen at their current rates by edict of the Government of Canada?
I have heard rumours to that effect based on the desire on the part OSFI to have all Canadian financial institutions compliant with Basel III requirements before dividend increases can resume.
 

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The Canadian banks need approval from OSFI to pay or raise dividends. Normally this is almost automatic but given the changes to the capital rules (Basel iii) the banks have been strongly encouraged (mandated) not to raise dividends until they can show they meet the new rules. These rules should be known by the end of this year. The CDN banks are expected to meet the new rules easily. They are expected to start raising dividends again by early 2011 with TD and RY leading the way.
 

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The Canadian banks need approval from OSFI to pay or raise dividends. Normally this is almost automatic but given the changes to the capital rules (Basel iii) the banks have been strongly encouraged (mandated) not to raise dividends until they can show they meet the new rules. These rules should be known by the end of this year. The CDN banks are expected to meet the new rules easily. They are expected to start raising dividends again by early 2011 with TD and RY leading the way.
Thanks for the info!
 

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One other thing- all the banks have a dividend payout ratio target (divs/cash earnings) in the range of usually 40-50 percent. They need to increase their earnings a bit from here to justify an increase to their dividends. Should still be early next year though.
 

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The Canadian banks need approval from OSFI to pay or raise dividends. Normally this is almost automatic but given the changes to the capital rules (Basel iii) the banks have been strongly encouraged (mandated) not to raise dividends until they can show they meet the new rules. These rules should be known by the end of this year. The CDN banks are expected to meet the new rules easily. They are expected to start raising dividends again by early 2011 with TD and RY leading the way.
I dont believe that is correct.

A bank can pay or raise dividends as it pleases. Only when the dividend results in negative earnings will the OSFI step in. And I am not even sure if they can do anything. Banks must report a negative earnings situation.

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/regulatory/Advisory_declaration_and_payment_of_dividends_e.pdf
 

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Thanks for the link, Bean. I suspect it's a situation in which the regulators have encouraged, but not necessarily mandated, that banks keep extremely conservative capital ratios.
 

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OSFI holds very strong powers of moral suasion. During the financial crisis this was even higher. Banks are very aware that an unhappy regulator is a very bad thing. Several senior execs effectively lost their jobs for losing OSFI's confidence. There is plenty OSFI can do if they feel a particular bank is not acting in the best interests of depositors. Canada's finance minister (OSFI reports directly to him) can change regs or the bank act to effect his will. Having said this the major control over the payment of dividends is a test that requires that over a 2 year rolling period earnings (GAAP not cash earnings) must exceed dividends. I am aware of at least one case in the past where this test was waived by OSFI in unusual circumstances. No bank CEO or board would defy OSFI in the current environment. Banks are run by extremely responsible and conservative execs. Needless to say banks are anxious to start raising divs as this shows things are getting better and would have a positive impact on their stock price. Should be Q1 of 2011.
 

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admiring root's command of the verb "to effect."

lesser mortals always confuse this with "to affect."

argument re osfi's power also very convincing, bravo.
 
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