UK banks drop dividends over coronavirus fears and pressure on bonuses
LONDON (Reuters) – Major UK banks have cut dividend payments after pressure from the regulator, saving their capital as a buffer against expected losses from the economic fallout from the coronavirus.
Barclays BARC.L, HSBC HSBA.L, Lloyds Banking Group LLOY.L, Royal Bank of Scotland RBS.L, Standard Chartered STAN.L and the British branch of Santander in Spain SAN.MC all payments were halted in a coordinated industry response to a request from the Prudential Regulatory Authority (PRA) on Tuesday.
Lenders were expected to pay more than 8 billion pounds ($ 9.93 billion) between them in 2019 dividends, with HSBC being the biggest payer with $ 4.2 billion.
The PRA has also asked banks and insurers not to pay bonuses to senior executives this year, although none of the banks chose to provide details on how they would comply with this second request.
UK lenders have also delayed announcing changes to their executive compensation policies.
Shares of domestic lenders Lloyds and Barclays lost more than 5% each early in trading, while HSBC and Standard Chartered saw their shares fall 7.7% and 6% respectively at 7:08 am GMT.
HSBC Hong Kong stocks 0005.HK fell 9.9% to its lowest level since March 2009, while StanChart fell 7.4% in morning trading on Wednesday. The broader Hong Kong market index .HSI was down 0.4%.
The PRA has said the banks have entered the pandemic, which has put Britain in detention, with strong capital positions sufficient to withstand a severe UK and global recession.
Banks pay dividends as a way of rewarding shareholders and disposing of excess profits, but they have the option of keeping profits instead to preserve their capital levels.
While the suspension of distributions to investors has been described as cautious by lenders, analysts at Jefferies said the move had “structurally bearish ramifications” for the industry, including an increase in the cost of equity.
“… It is not beyond human mind that some banks might need rights issues and all this uncertainty, in our view, ultimately weakens investment proposals.” potential. “
FOLLOWING THE EMPLOYMENT OF THE ECB
The statements by UK lenders come after the European Central Bank (ECB) last week asked euro area lenders to skip dividend payments and share buybacks until October at the earliest, and use their profits to support the economy.
Several of the largest European lenders, including UniCredit CRDI.MI, and Societe Generale SOGN.PA, have already announced that they will suspend the payment of 2019 dividends for the time being.
However, there are a few blockages. Swiss banking giants UBS UBSG.S and Credit Suisse CSGN.S both said they plan to move forward with 2019 dividends despite their local regulator urging caution about payments.
The decision to cut 2019 shareholder distributions is expected to free up capital that banks can lend to businesses and consumers shaken by the coronavirus pandemic instead.
But some analysts believe that canceling dividends could actually hurt the supply of credit to the real economy.
“We note that the market capitalization of euro area banks fell on March 30 along with the € 30 billion ‘saved’ by its dividend ban on Friday March 27,” Bank of America analysts said. Merrill Lynch in a note, referring to the ECB movement.
The European Union’s banking watchdog said earlier on Tuesday that banks should be “conservative” in the way they grant bonuses to preserve capital and continue to lend during the coronavirus pandemic.
However, he did not ask the banks to stop bonuses altogether.
Italy’s UniCredit and Spain’s BBVA both said this week their top management would forgo their 2020 bonuses.
Standard Chartered reported in a note Monday that the bank would likely cut its executive payments in 2020.
PRA chief executive Sam Woods also wrote to chief insurers, saying they should pay “special attention” to the need to protect policyholders and maintain safety and soundness when reviewing insurance policies. bonuses or dividends.
HSBC signaled a dismal first-quarter earnings season for UK banks, warning in its statement that it would see bad loans rise and income fall as the economic impact of the pandemic hits.
The coronavirus has infected more than 850,000 people worldwide and killed more than 42,000, according to a Reuters tally. For an interactive graphic depicting the global spread of the virus: open tmsnrt.rs/3aIRuz7 in an external browser.
Reporting by Lawrence White and Iain Withers, additional reporting by Huw Jones, Sinead Cruise in London and Sumeet Chatterjee in Hong Kong; Editing by Himani Sarkar and Jason Neely