By DealBook March 6, 2009 10:00 am March 6, 2009 10:00 am

Bank dividends are plunging faster that the Dow Jones industrial average these days.

Friday brought news that Wells Fargo. the San Francisco-based lender that just bought Wachovia, would slash its quarterly payout to 5 cents for each share of common stock, from 34 cents a share. In doing so, it followed the leads of Bank of America and Citigroup. both of which are paying a nominal penny-per-share dividend, and JPMorgan Chase. which, despite holding up relatively well amid the financial chaos, cut its dividend to 5 cents a share, down from 38 cents, in January.

Given the drumbeat of dividend cuts, Wells shareholders were probably prepared for Fridays news. In fact, Wells stock rose sharply in early trading.

Still, it was a humbling step for Wells, which largely avoided making the exotic, risky mortgage loans that hobbled many of its competitors when the real estate bubble burst.

It was also a grim sign of the times for the banking industry, as even the stronger players are going into capital-conservation mode.

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,” John Stumpf, Wells Fargos president and chief executive, said in a statement Friday.

Wells said the dividend cut would save $5 billion a year, which the bank would use to reinvest in the company and increase its capital cushion.

As recently as July, Wells and Mr. Stumpf were riding high, as the bank known for its signature stagecoach logo actually increased its dividend by 10 percent.

Of course, much has changed since then.

For one thing, the United States economy slipped into recession and Wall Street was rocked by a series of collapses and government bailouts.

To avoid the appearance of a bailout for bank shareholders, the government has generally encouraged banks that took or were sternly told to take rescue funds to keep their dividend payouts low.

For another, Wells Fargo bought Wachovia, whose loan portfolio was full of the riskiest kinds of mortgages. Although Wells drastically wrote down the value of many of Wachovias loans at the time of the acquisition, which closed on Dec. 31, some investors and analysts are now concerned that it didnt write them down enough.

Moodys cited concerns about the Wachovia portfolio in a report this week, in which it said it was putting Wells Fargos debt on review for a possible downgrade. The report also said that Wells Fargos so-called tangible common equity ratio, adjusted for certain factors, was modest, at 5.1 percent.

In Fridays announcement, Wells Fargo said the $5 billion in dividend savings amounted to an additional 40 basis points on its tangible common equity ratio. It also said the Wachovia merger was proceeding as planned and is on track.