Eurozone banks are in solidarity with the ECB, but not Switzerland
Banks in the eurozone are scrapping plans to return cash to shareholders on behalf of regulators, building up reserves instead as the coronavirus epidemic threatens to plunge the world into a deep recession.
As measures to tackle the economic pandemic, banks are at the forefront of the struggle to keep run-down businesses, while lending institutions in Switzerland and the United States, by contrast, are pushing ahead with dividend payments no matter what..
Last week, the European Central Bank asked financial institutions to postpone dividend payments and buybacks of their shares until at least October, calculating that in this way they could save up to € 30 billion and instead channel profits to support the economy..
The ECB’s demand was something like "one good turn deserves another" (quid pro quo) after he helped banks to cope with the situation, allowing them to go deeper into their capital and cash reserves, as well as turning on the mechanism for obtaining cheap loans.
In Italy, now the epicenter of the outbreak in Europe, UniCredit on Sunday froze its plans for planned 2019 dividend payments and share buybacks, becoming the first Italian bank to respond to ECB demands..
Dutch bank ABN Amro, badly hit by the recent market turmoil with an estimated $ 200 million loss, followed the example of the Italians and said it would also cancel dividend payments for now. Online banking specialist ING, agricultural lender Rabobank and Belgian KBC did the same..
German Commerzbank says it will not offer to pay dividends for 2019.
In Ireland, which was forced to accept international bailout during the latest financial crash, the Bank of Ireland and Allied Irish Banks (AIB) canceled their planned dividend payments for last year..
These measures will provide relief for regulators and help allay fears that multibillion-dollar aid from central banks and governments to mitigate the negative economic impact of the coronavirus outbreak on businesses, including banks themselves, will end up in the pockets of investors..
Investors were disappointed by this state of affairs, and on Monday morning banking shares fell sharply: ING, ABN Amro, AIB and Bank of Ireland fell more than 6%.
In France, Credit Agricole and Natixis said their boards of directors will meet in the coming days to discuss the matter, while BNP Paribas and SocGen said they are currently studying the ECB’s statement..
Agustin Carstens, head of the Bank of International Settlements (BIS), the umbrella organization for central banks, said over the weekend that «global freeze on bank dividends and share repurchases» essential in the face of the coronavirus outbreak.
The Danish Financial Conduct Authority joined the call on Monday, stating that the banking sector should not pay dividends or buy back shares amid uncertainty..
But some lending institutions are determined to make dividend payments to shareholders. Banks in Switzerland ignored instructions from local regulators. In the U.S., the eight largest banks halted share buybacks, but none cut dividends despite mounting political pressure.
The largest Swiss bank and the world’s largest asset manager, UBS, has announced that they will seek dividend payments for 2019, despite instructions from the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss government to limit payments..
The bank, which was rescued a decade ago by the Swiss federal government with a CHF 6 billion ($ 6.28 billion) capital injection during the financial crisis, said it was able to bolster both the economy and pay dividends to shareholders..
Credit Suisse also said it would not make any changes to its approved dividend plan..
Meanwhile, the Bank of England has warned lending institutions not to use stimulus money in the interests of shareholders, but has not yet issued any recommendations on payments..
UK Finance, the trade association for the UK banking and financial services sector, said on Monday that allocation policies should reflect «reasonable estimate» the current economy and its prospects when it comes to dividends for this year, but did not mention the payments for 2019.
Barclays is due to pay out around £ 1bn on Friday, HSBC on April 14, and Royal Bank of Scotland (RBS), which is more than 60% owned by British taxpayers, will pay dividends to shareholders on May 4..
The CEOs of eight UK banks will be on a conference call with Christopher Woolard, Executive Director of The Financial Conduct Authority (FCA), earlier this week to discuss ways to ease the burden on clients, and also discuss the issue of paying dividends and bonuses for employees.
The Central Bank of the Russian Federation (Bank of Russia), which approved a list of temporary regulatory relaxation on March 20, called on financial institutions to use these opportunities not to pay bonuses to management, but to support lending to the economy..