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By Jason Stipp | 09-10-2010 03:00 PM

Five Big Questions About Banks

Morningstar bank analyst Jim Sinegal answers the Friday Five on dividends, write-offs, loans, and fees, plus the best positioned banks.

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to The Friday Five.

We're about two years on from the Lehman Brothers collapse and the depths of what is now known as "The Financial Crisis," and I wanted to check in on one of the major players in that crisis--the banks.

Here with me to offer some insight and answer five questions for us today on the banks is Jim Sinegal. He is associate director of equity research covering the banks. Thanks for joining me, Jim.

Jim Sinegal: Thanks for having me.

Stipp: So the first question for you I think is one that's very near and dear to the hearts of our readers on Morningstar.com, and it has to do with bank dividends. We saw unfortunately some dividends cut in the banking sector. I think a lot of folks are probably wondering when they will come back in full force, and when they do come back, can we think of them as being stable once again or must we think of them as a higher-risk dividend?

Sinegal: It's hard to know exactly when dividends will come back, but I think the short answer is it's going to be a while. We haven't gotten any clear guidance from regulators on what the new capital requirements are going to be and banks aren't sure how profitable they're going to be in the future. So if you're bank management, board of directors, you don't know how much capital you're going to have to hold, you don't know how much money you're going to be making. So it's really hard to decide at this point how much you're going to be able to pay out to shareholders.

When they do come back, I think they will be stable. I think people are going to be lot more conservative as far as payout ratios, how much of their income they're going to give out to shareholders. So I don't think we'll see dividend cuts until we get another crisis, which is hopefully at least a decade down the road.

Stipp: We'll knock on wood for that certainly.

One of the issues that the banks face, and the second question is [regarding] some of the big write-offs that they have to take for some of the bad loans, especially in the mortgage area. The write-offs seem to have gotten better in some areas but then there's still talk out there about another shoe to drop in commercial real estate and other loans that might be on the books. Have we seen the write-offs really stopped or have they just paused?

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