Bonfire of the bank dividends

IFR 2327 - 04 Apr 2020 - 10 Apr 2020
6 min read
Christopher Spink, Steve Slater

Britain's banks have axed dividend payouts and most major peers in the eurozone have suspended them after being asked to do so by financial regulators. The authorities want banks to build war chests for lending to help stave off the deep recession that will result from the coronavirus pandemic.

The move was most marked in Britain, where the Bank of England gave banks little option. Within hours, all the major banks, including HSBC and Barclays, said they would not pay interim or quarterly dividends in 2020. They also halted payment of their final 2019 dividend, wiping out £7.9bn (US$9.8bn) due to be paid. That included US$4.3bn due from HSBC, a move that angered many of the bank's army of retail shareholders in Hong Kong and prompted a 10% sell-off in its share price.

Most eurozone banks also scrapped or suspended their dividends following pressure to do so by the European Central Bank and the European Banking Authority.

Santander, the eurozone's biggest bank, cancelled its final 2019 dividend worth €2.1bn and said it would wait until "there is more visibility of the effects of the Covid-19 crisis" before proposing any future payments.

BNP Paribas, another of the Continent's biggest dividend payers, also said late on Thursday it was suspending its final 2019 payout. It said the cash would be held in reserve, and after October 1 it may distribute those reserves to shareholders in place of the dividend, depending on market conditions.

Societe Generale had already cancelled its final 2019 dividend, following similar moves by ING, UniCredit and Intesa Sanpaolo earlier in the week. However, most banks said they might still make payments covering 2019, but only after October 1 in line with the ECB’s guidance.

The ECB explicitly said dividends already proposed did not have to be cancelled but urged banks that had not yet held their annual general meetings to change their proposals – which Santander did on Thursday.

Swiss banks are taking a different tack despite their regulator, Finma, urging them to halt dividends. Neither UBS nor Credit Suisse have amended their AGM agendas for April 29 and 30 respectively, asking shareholders to approve final 2019 dividends.

In the US, the largest banks said they had no plans to halt or cut their dividends. Citigroup CEO Michael Corbat said the bank was well positioned to keep making its dividend payments and would do so. US banks have halted share buybacks, which are a far bigger part of their capital distribution policies.

European regulators also stepped up pressure on banks to stop cash bonuses for staff this year to save money. Banks in Britain and elsewhere mostly resisted those calls – saying that is a decision for later in the year.


Britain's banks were in effect given little choice on dividends by the Bank of England's Prudential Regulation Authority, which threatened to take supervisory action against them if they did not.

"The PRA stands ready to consider use of our supervisory powers should your group not agree to take such action," PRA CEO Sam Woods said in a letter to each bank's chief executive.

The BoE moved quickly because some payments were imminent. It wrote to banks on Tuesday afternoon and told them to make a decision within hours, which they did. That was because Barclays was due to make its payment on Friday, one person at a rival bank said.

HSBC was hardest hit by the news, as it prides itself on its ability to pay dividends, and investors, especially in Hong Kong, rely on its reliable income. HSBC had been due to pay a US$0.21 dividend on April 14. The bank made 55% of its profit in Hong Kong last year, and about 40% of its shareholders are retail investors in the territory.

"Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption," the PRA said.

It said the banks were well capitalised but "the extra headroom should help the banks support the economy through 2020".


London-based Standard Chartered also halted its share buyback programme, which had surprisingly continued on a daily basis. In March it bought back £186m of shares, or 46% of its 2020 plan.

State-backed UK bank Royal Bank of Scotland said it would no longer pay out £1.3bn of dividends it had promised. But it said there would be no impact on the payment of interest on outstanding preference shares or Alternative Tier 1 instruments.

SG also said the decision had no impact on coupon payments on its AT1 bonds.


In the US, dividends look set to continue for the biggest banks, although the escalating pandemic crisis there could see plans quickly change, as happened in Europe last week.

The biggest six US banks, including JP Morgan, Bank of America and Citigroup, are due to pay about US$35bn in dividends, representing about 23% of their shareholder capital return plans.

The far bigger portion of the plans is share buybacks, which were due to total more than US$113bn across the banks for the 2019–20 plans approved by the US Federal Reserve. Each bank suspended its buyback programmes in mid-March, but kept their dividends in place.

"I do not agree with eliminating dividends because investors who have funds at risk deserve a return on their money,” said Odeon Capital bank analyst Dick Bove. More importantly, he said, “eliminating the dividend could panic the markets into believing that the Federal Reserve cannot contain the current financial crisis”.

Additional reporting by Philip Scipio