Citigroup (NYSE: C) has come close to saying it will not cut its dividend under any circumstances. Merrill Lynch (NYSE: MER) has not cut its dividend in almost four decades. But there are signs cuts will come.

According to Bloomberg, options traders think a Merrill dividend reduction is coming. "The market is pricing in a significant cut, roughly 50 percent or more,'' said Steve Sosnick, who trades options at Interactive Brokers Group Inc.," the news service reported.

Leaving options traders aside, there may be strong financial reasons for Merrill, Citi and other banks to make the cuts. Many analysts believe that total mortgage-backed securities losses will come to over $1 trillion. Only about 50% of that has passed through financial firm P&Ls. That means more losses and a need to raise more capital. Dividend cuts could do that.

For shareholder in the banks, dividends are almost all they have left. Merrill has a high dividend of 5.6%, which means it pays out more like a corporate bond. But that is $1.40 a share and the broker has a float of almost 1.4 billion shares. Citi's numbers are similar.

Is a dividend cut already priced into the stocks? Who knows? Merrill trades at $25.60, near its 52-week low of $22. A heavy set of losses could take it well below $20. For investor who got in at much higher prices, the dividend is cold comfort.

Financial firms will cut their dividends. With capital hard to come by, it is their most efficient way to "raise" money.

Douglas A. McIntyre is an editor at 247wallst.com.