The UK’s biggest banks are facing pressure to cancel or delay big dividend payouts to investors to make sure they have the resources to keep struggling business afloat during the coronavirus crisis.
Britain’s biggest banks – Barclays, HSBC, Lloyds, RBS and Standard Chartered – are due to pay out £15.3billion in dividends, a figure which exceeds the amount paid in 2007, just before the financial crisis, according to research by investment platform AJ Bell.
Half of that money is due to be paid out to investors in the coming weeks – but both small shareholders and big City investors face disappointment.
Britain’s biggest banks – Barclays, HSBC, Lloyds, RBS and Standard Chartered – are due to pay out £15.3billion in dividends, half of which in the coming weeks
With the coronavirus pandemic wreaking havoc among UK businesses, lenders are under pressure to axe payouts – and executive bonuses – so they have the money to help businesses.
‘Politically the plan is an easy sell since the dividend cancellation and debt forbearance plans could be pitched as the banks returning the favour that the public did for them with the bail-outs that came after the Great Financial Crisis (even if it must be said that neither Barclays nor HSBC nor Standard Chartered actually accepted any bail-out cash in 2008-09),’ said Kevin Doran of AJ Bell.
The Bank of England has not blocked payouts, but its new governor Andrew Bailey is facing pressure to do so.
The world’s ‘bank for central banks’, the Bank for International Settlements, yesterday called for a ‘global freeze’ on bank dividend payouts.
However, should such a move be implemented by the Bank of England it would likely prompt shareholder fury given that banking executives have been issued with bonuses in recent weeks.
Dividend payment: Barclays is due to share £1billion among investors on Friday
Some European lenders, including Dutch bank ING, Italy’s Unicredit, Belgium’s KBC and Germany’s Commerzbank, have all already suspended dividend payments.
In the UK, bosses of the country’s eight largest High Street banks joined a call with the Bank of England and the Financial Conduct Authority in recent days to discuss how the industry was coping with the disruption caused by the Covid-19 pandemic.
But it is understood the regulators did not touch on the dividends issue, even though Barclays is due to share £1billion among investors on Friday.
Barclays is understood to be keen to pay its dividend, which is for the second half of 2019, and review any future payouts when they come up.
Neil Wilson, an analyst at Markets.com, says ‘capital discipline will be welcomed’ by investors, whether it’s enforced or not.
‘Short-term I don’t particularly think dividends are going to be a major factor in trading action – investors will not be quibbling over whether they get a 2% or a 6% dividend yield on stocks, they should be looking at whether these companies are going to be in a decent shape after the fallout,’ he said.
The Bank of England has not blocked payouts, but its new governor Andrew Bailey is facing pressure to do so
Ian Gordon, an analyst at Investec, said it is unnecessary for robust banks to cancel their 2019 dividends.
But he added: ‘2020 dividends are an entirely different matter, and in many cases are likely to be decimated by a combination of sharply lower revenues and recessionary impairments.’
The UK’s major banks have all passed the Bank of England’s stress tests and have been given more room by regulators about how much capital they have to hold.
However, this is a tough environment for banks, according to AJ Bell’s Russ Mould, as their margins are under pressure amid record low interest rates, and now they could face sour loans as businesses see their cash flow dry up.
‘That’s a pretty unpleasant combination and one which could easily hit earnings – and that’s before the downturn, at least in the short term, by the investment banking operations of Barclays and HSBC,’ he said.
Under new special coronavirus measures unveiled by the Government, individuals and businesses can ask banks to take so-called ‘mortgage holidays’, where they can suspend payments for up to three months.
Some European lenders, including Dutch bank ING, Italy’s Unicredit (pictured) Belgium’s KBC and Germany’s Commerzbank, have all already suspended dividend payments
Meanwhile, some banks like Barclays and Metro Bank have already agreed to temporarily waive new increased fees on overdrafts to help out consumers who may slip into the red.
Citing Bank of England data, AJ Bell’s Doran said banks stand to miss out on about £28billion revenue per quarter from not receiving interest payments on debt by consumers and companies.
‘A three-month holiday on those interest payments would mean a loss of income and capital for the banks – but suspending dividend payments could cover more than half of the balance sheet hit for the big five banks,’ Mould said.
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