In the latest blow to income-seeking investors, the UK’s largest listed banks have bowed to regulatory pressure and agreed to suspend all dividends, dividend accruals and buybacks in 2020.
On Tuesday night, HSBC (HSBA), Lloyds Banking (LLOY), Barclays (BARC), Standard Chartered (STAN) and Royal Bank of Scotland (RBS) each made the decision to scrap shareholder returns amid the unprecedented challenges facing the UK economy. The banks also agreed to cancel final or fourth-quarter pay-outs for 2019, following a direct request by the Prudential Regulation Authority chief executive Sam Woods.
The distributions were scrapped despite the regulator’s acknowledgement that the sector’s capital buffers are well in advance of minimum requirements, meaning banks can withstand considerable losses. “We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions,” said the PRA, “but the extra headroom should help the banks support the economy through 2020.”
The wording of the banks’ statements leave open the possibility for a final dividend to be declared for the 2020 financial year, should the current crisis abate. Interest on outstanding preference shares and so-called AT1 securities is also unaffected.
Hardest hit by the development were shares in HSBC, which at one point fell by more than 9 per cent. While the group is a major player in UK banking, some investors may have hoped that a global presence might have strengthened its hand in discussions with a domestic regulator. In an apparent reflection of this tension, HSBC’s board said it “regrets the impact this cancellation will have on our shareholders, including our retail shareholders in Hong Kong, the UK and elsewhere”.
The BoE also urged banks to scrap cash bonuses to senior staff and traders, and said it was “confident that bank boards are already considering and will take any appropriate further actions” over variable remuneration schemes.
The move follows advice by the European Banking Federation for its members – including trade association UK Finance – to cancel dividends amid the Covid-19 crisis. The European Central Bank has also recommended eurozone banks suspend pay-outs and buybacks until at least October.
