UK bank stocks plunged on Wednesday after the sector halted dividends and buybacks in response to the Bank of England’s warnings against paying out billions of pounds to shareholders during the coronavirus pandemic.
HSBC and Standard Chartered — which are both headquartered in London but do the vast majority of their business in Asia — fell more than 8 per cent and over 7 per cent, respectively, wiping billions from their valuations and causing a backlash among Hong Kong retail investors.
Before the dividend announcement, HSBC had fallen 23 per cent this year, around half as much as its more UK-focused peers. It was due to pay out $4.2bn in dividends in two weeks’ time.
“From a UK policy perspective it is understandable [ . . .] but this is damaging in Asia and around the world,” said Ronit Ghose, an analyst at Citigroup. “UK institutional investors and Hong Kong retail investors own bank shares for the dividend. This isn’t billionaires and hedge funds, a lot of these people are ordinary folk.”
The declines for UK lenders focused on their domestic market were also significant. Barclays — which was due to pay a £1bn dividend on Friday — dropped over 7 per cent, and Lloyds and RBS both fell more than 5 per cent.
In a series of co-ordinated statements on Tuesday evening, Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered said they would cancel their dividends for 2019 and refrain from setting cash aside for investor payouts this year. They also pledged not to carry out any share buybacks.
Their announcements were made as the Prudential Regulation Authority, the supervisory arm of the BoE, published a statement welcoming the dividend cancellations.
The regulator also said it “expects” the banks and Nationwide, the building society, to refrain from paying any cash bonuses to senior staff and signalled they should stop setting money aside for variable pay during the “coming months”.
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The banks said they had made the dividend move following a “formal request” from the PRA and that the decision would allow them to “serve the needs of businesses and households” during the coronavirus shutdown, which will drive millions of Britons out of work and thousands of small businesses into bankruptcy.
In letters to each of the chief executives of the six banks and Nationwide, published late on Tuesday night, the BoE warned that it was “ready to consider use of our supervisory powers” if they did not comply with its recommendations on dividends and bonuses.
By bowing to the regulator’s wishes on dividends, the banks have avoided being subjected to formal action. But the decision to cancel last year’s payouts — worth £7.5bn — will prove unpopular with some investors, especially retail shareholders who rely on the payout for their income.
“Regulatory uncertainty has once again reared its head,” said Joseph Dickerson, an analyst at Jefferies. “Perhaps most importantly, should the present economic situation prevail for the remainder of the year, it is not beyond the wit of man that some banks might need rights issues.”
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