BRITAIN’S biggest banks saw their shares plunge after confirming they were scrapping more than £7 billion of dividend payments amid the deepening coronavirus crisis.
Royal Bank of Scotland, Lloyds Banking Group, Barclays, HSBC, Santander and Standard Chartered announced they would not be returning money to shareholders via dividends, or buying back their own shares, until the end of the year. Outstanding dividends from 2019 are also being cancelled.
The news prompted an investor rout, with FTSE 350 banking stocks dropping 9.76 per cent. Top fallers included Barclays, which closed down 11.95% at 82.86p.
Lloyds Banking Group dropped 11.66% to close at 28.27p. HSBC Holdings closed down 9.52% at 411p. Royal Bank of Scotland also fell 5.23% to close at 107p.
The banks were responding to written requests from the Bank of England’s Prudential Regulation Authority (PRA) – which oversees financial stability in the UK. It wants banks to conserve cash for businesses and households and help support the wider economy ahead of a likely recession.
“The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers,” the regulator added in a letter to bank chief executives.
John Cronin, a financial analyst at Irish investment bank Goodbody, said the bank dividend cut and pay restrictions were “heavier-handed than we thought.”
Investment firm Killik & Co said the moves reflected similar to steps taken in Europe and the US and added: “While this is clearly disappointing for shareholders, it is the correct decision given the uncertainty surrounding the depth and duration of the economic slowdown and the impact on the banking sector.”
Broker AJ Bell said nearly a fifth of the FTSE 100 had now cancelled or postponed dividends and the number was likely to get higher while consumers stay indoors and businesses run on reduced capacity or lay idle.
Kevin Doran, chief investment officer at AJ Bell, added: “The big question following £7.5bn of dividend cuts by the UK’s largest banks is what are they going to do with the money? Now would be the ideal time to repay the British public for the bailout the banks received during the Financial Crisis by writing off debt repayments for a period of time for those most affected by the Covid-19 crisis.”
Royal Bank of Scotland had been due to pay £968 million to shareholders on 4 May. The bank is still 62% owned by the taxpayer and would have paid HM Treasury around £600m in dividends.
Chief executive Alison Rose said: “Helping people, families and businesses who need our support is the right thing to do at this time of significant uncertainty.”
Royal Bank has a robust capital and liquidity position, she said, and was focused on supporting customers and helping them to navigate the immediate and longer-term challenges they are facing as a result of Covid-19.
On remuneration, a spokesperson said the bank would of course comply with the PRA’s requests. For background, the spokesperson added that RBS has 600 material risk takers; its senior leadership team does not receive any variable remuneration in cash and it has the smallest bonus pool of any major UK bank.
Shareholders in Lloyds Banking Group, which returned to private ownership in 2017 after the UK government sold the last of its 43% stake, were due to receive £1.58 billion in dividends.
The bank said its suspension of dividends and share buybacks would “help us to serve the needs of businesses and households through the extraordinary challenges presented by Covid-19.”
Barclays shareholders would have been paid £1.03 billion on Friday. Barclays chairman Nigel Higgins said these were “difficult decisions,” but were “right and prudent, for the many businesses and people that we support.”
Standard Chartered said decisions on 2020 remuneration, including executive remuneration, would be taken in the light of the group's overall performance and the challenges faced by its stakeholders from the spread of Covid-19.
Santander had already announced executive pay cuts on March 24, including executive chairman, Ana Botín, and chief executive, José Antonio Álvarez, deciding to forgo 50% of their salary and bonus for 2020.
The PRA also warned insurers to pay close attention to the need to “protect policyholders and maintain safety and soundness” before paying out dividends or bonuses.
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