Wells Fargo & Co. (WFC) became the last major commercial bank to cut its dividend amid mounting pressure from bad mortgages and related loans on its books Friday morning, cutting its quarterly common stock dividend 85 percent, from $.34 to $.05 per share. "This was a very difficult decision but it's absolutely right for our company and our shareholders because it will further strengthen our ability to grow market share and to continue our long track record of profitable growth," said president and CEO John Stumpf, who said operating results at the San Fransisco-based bank were 'strong' despite the dividend cut. "We will return to a more normalized dividend level as soon as practical." That practical future, however, may be longer coming than most might think. In late January, analyst Paul Miller at FBR Capital Markets cut his price target on the bank and assigned shares an "underperform" rating, while suggesting in no uncertain terms that Wells would not be able to maintain its dividend. "WFC is not earning its dividend, which is a $5.8 billion annual drain on valuable capital," Miller wrote in the Jan. 29 note to clients. "WFC needs to rebuild its capital ratios, whether measured by tangible common equity at 2.8% (which we prefer) or regulatory capital ratios." Miller said then that Wells' capital levels "are just too low" and said that the bank may take another nearly $28 billion in loan loss provision expense this year, due to the absorption of a troubled Wachovia banking franchise. Wells now holds a $120 billion option ARM portfolio, as well as a substantial portfolio of second liens. With more than $200 billion of such loans on the books, any mortgage market participant should ask just how far that book needs to be marked down to (we won't tell you what second liens are trading at right now, but let's just say it's somewhere barely north of zero). Moody's Investors Service has some concern here, too. The rating agency warned earlier this week that it was reviewing the long-term ratings of the bank for a possible downgrade. Analysts with the rating agency cited "a concern that Wells Fargo's capital ratios could deteriorate in 2009 from their current levels, which are comparatively low, because of the potential need to take high loan loss provisions in 2009." Rochdale Securities analyst Dick Bove suggested to Reuters on Thursday that the government may have forced Wells into cutting its dividend, after the bank accepted federal funds via the Treasury's Capital Purchase Program. "Is the bank healthy enough to pay the dividend? I think the answer to that is yes. Is the bank likely to be pressured into reducing its dividend? The answer to that is I don't know," Bove told the news service. I tend to think Bove might be shopping his own book here, after putting a "buy" rating on WFC in January when the bank's stock was solidly in the 20's. Shares in Wells were up 4.56 percent in early trading Friday, to $8.49. I've expressed pretty strong skepticism about Wells' loan book in the past, and that skepticism remains today. While I think the bank has smartly avoided some of the larger pitfalls that have befell its peers -- ahem, subprime, anyone? -- it's clear there is still plenty of losses that need to be accounted for going forward. There is an adage here any of us would do well to remember: actions speak louder than words. An 85 percent cut in a dividend? While the core business allegedly remains strong? If the business was that strong, why cut the dividend now, especially in this market? I understand all banks need more capital right now, but the smell test here suggests that Wells' management is saying one thing while doing another. Caveat emptor. Write to Paul Jackson at paul.jackson@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.