Banks bow to pressure and axe dividend payments

Andrew Cummings
April 3, 2020

PRA chief executive Sam Woods also wrote to heads of insurers, saying that they should pay "close attention" to the need to protect policyholders and maintain safety and soundness when considering bonuses or dividends.

BRITAIN'S top banks have axed dividend payments after pressure from the regulator, saving their capital as a buffer against expected losses from the economic fallout from the novel coronavirus.

Originally HSBC shareholders would receive 21 United States cents of dividend per share by 14 April, but now the bank will not resume dividend payment at least till next year.

United Kingdom banks, including HSBC Holdings Plc, agreed to scrap dividends and buybacks this year after the regulator pushed to contain spending to shareholders as the coronavirus pandemic upends the industry.

"The PRA welcomes the decisions by the boards of the large United Kingdom banks to suspend dividends and buybacks on ordinary shares until the end of 2020, and to cancel payments of any outstanding 2019 dividends in response to a request from us", the regulator said in a statement. On ex-dividend day, share prices are reduced by the amount of the upcoming dividend, which already applies to Barclays and HSBC (both 27th February), Standard Chartered (5th March) and Royal Bank of Scotland (26th March). Barclays was due to pay more than 1 billion pounds on Friday.

According to Bloomberg, HSBC shares plunged as much as 10% in London trading and were down 8.4% at 11 a.m. London time on Wednesday.

The regulator said that the banks had enough money in reserve to cope with a global recession and a shock in financial markets.

After taxpayers bore the brunt of the government bailout of banks following the global financial crisis - and precious few criminal charges were brought against those who might've been responsible - some people anxious a government safety net would mean they'd be more likely to misbehave in the future.

The PRA welcomed the decision to suspend dividends and buybacks and said it also expected banks "not to pay any cash bonuses to senior staff, including all material risk-takers".

The British lenders also held off announcing changes to their executive pay policies.

But some analysts believe that cancelling dividends could actually harm the supply of credit to the real economy.

"The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now", Barclays Chairman Nigel Higgins said.

The European Union's banking watchdog said earlier on Tuesday that banks should be "conservative" in how they award bonuses to preserve capital and keep lending during the coronavirus pandemic.

A few European banks, including UniCredit of Italy, Societe Generale of France and Dutch banks ING Groep (ING) and ABN AMRO Group, have announced they will temporarily suspend dividends.

UniCredit and Spain's BBVA (BBVA) both said their senior management will waive their bonuses for this year.

"The board regrets the impact this cancellation will have on our shareholders", HSBC said in a statement.

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