The UK’s largest lenders bowed to pressure from Britain’s top financial regulator and halted their dividends after they were warned against paying out billions of pounds to shareholders during the coronavirus pandemic.
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 Bank of England, 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”.
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 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.
In its statement, HSBC said it regretted “the impact this cancellation will have on our shareholders, including our retail shareholders in Hong Kong, the UK and elsewhere”. The Asia-focused bank also warned its revenues would be hit by higher credit losses because of coronavirus, although it said its performance in the first quarter had been “resilient”.
The Asia-focused bank had been due to pay a dividend totalling $4.2bn on April 14.
HSBC’s Hong Kong-listed shares fell as much as 9.9 per cent on Wednesday morning, while StanChart slid 7.4 per cent.
Nigel Higgins, chairman of Barclays, said: “These are difficult decisions, not least in terms of the immediate impact they will have on shareholders . . . but we think it is right and prudent, for the many businesses and people that we support, to take these steps.”
Barclays had been due to pay a full-year dividend of 6p per share on Friday, worth roughly £1bn.
The flurry of statements and letters followed behind-the-scenes phone calls earlier on Tuesday between the chief executives and Sam Woods, the BoE deputy governor who leads the PRA.
Mr Woods urged the chief executives to “think very carefully about the optics” of capital distributions in the current environment, said people briefed on the calls.
“If your main prudential regulator calls and says ‘we would take a dim view of you paying a dividend, we would look askance on it’, then that carries a lot of weight in the boardroom,” said one UK bank chairman. “There is a moral force even if the governor doesn’t use the word ‘ban’.”
Lenders in the UK had been expecting a tougher approach from the PRA since the European Central Bank ordered eurozone banks to freeze dividend payments and share buybacks last week, a stance that has put “extraordinary pressure” on the PRA, the Financial Times reported. However, the BoE stopped short of imposing a blanket ban.
“In the BoE’s view, moral suasion is always better than diktat,” one of the people familiar with the discussions said.
“If I were Sam Woods, I would want the industry to do it themselves, show some responsibility at board level, so I understand the approach,” the person said.
Some senior managers at the banks in question had been waiting for firmer guidance from the BoE to help insulate them from shareholder criticism, especially from overseas funds or retail investors who rely on dividends for a significant part of their income.
The PRA also wrote to the country’s insurers, asking them to “pay close attention to the need to protect policyholders” when making decisions on shareholder payouts and staff bonuses this year, but it did not force them to cancel any existing or future dividends.
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