First Interstate Suspends Stock Discount Plan

First Interstate Bancorp on Monday suspended a key part of its dividend reinvestment program for shareholders because its stock price is too depressed.

The Los Angeles-based banking firm, parent of First Interstate Bank of California, had offered shareholders a chance each quarter to buy its stock at a 2.5% discount using their quarterly dividend of 75 cents a share. It provided an inexpensive way for First Interstate Bank to replenish its capital, which is its buffer against losses.

In addition, First Interstate had offered shareholders an opportunity to buy additional stock at a discount of up to $3 for each share they already owned. Someone with 1,000 shares, for example, could buy additional stock at a discount of up to $3,000.

In suspending part of the program, First Interstate said that allowing stockholders to buy shares at the discount while the stock is trading at its current low price would dilute the shares held by those who cannot participate in the program.

First Interstate’s stock ended the day at $28.875 a share, off 50 cents, in New York Stock Exchange trading. That is just a shade above its three-year low of $28.50 a share and less than half the level at which it was trading one year ago. The stock is also trading at about $9 below its book value, or net worth, of $37.81 a share.

Most bank stocks have suffered in recent weeks because of concerns about the economy and worries about the health of bank real estate loans. First Interstate’s stock in particular has suffered in the wake of a $124.5-million loss last year caused mainly by problems in its Texas and Arizona units.