Banks Agree To Scrap Dividends Under BoE Pressure

By Joanne Faulkner
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Law360, London (April 1, 2020, 11:49 AM BST) -- The country's biggest banks, including HSBC and Barclays, have agreed to temporarily scrap dividend payments after the Bank of England warned them to preserve cash to lend to the pandemic-stricken economy rather than pay shareholders or senior staff bonuses.

The moves come after the Prudential Regulation Authority wrote to the chief executives of six major banks, and Nationwide Building Society, urging them to cancel payments to help borrowers. The BoE's regulatory arm asked them to confirm their decision by late Tuesday.

Insurers were also cautioned to prioritize financial stability over dividends and bonuses, and the regulator said it "expects banks not to pay any cash bonuses to senior staff, including all material risk-takers."

Barclays, Royal Bank of Scotland, HSBC, Standard Chartered, Lloyds Banking Group and Santander said in a series of coordinated statements published late Tuesday and Wednesday morning that they would omit outstanding dividends for 2019 and would not return money to shareholders throughout 2020.

"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 in a statement late Tuesday.

The central bank warned in its letter to the bank chief executives that it is "ready to consider use of our supervisory powers" if the lenders do not comply with its recommendations on dividends.

Barclays said it decided to scrap its 2019 payout "in response to a request from the PRA and to preserve additional capital for use in serving Barclays' customers and clients."

But HSBC said it regretted "the impact this cancellation will have on our shareholders."

Lloyds said it acted "in order to help us to serve the needs of businesses and households through the extraordinary challenges presented by COVID-19."

The PRA does not expect the banks to need the money, except to "maintain adequate capital position." But the regulator said the "extra headroom" should help them to continue to lend to businesses and individuals.  

The government and regulators have told the finance industry to work to lessen any longer-lasting effects of the outbreak on jobs, growth and the economy.

And regulators across Europe have urged banks to think carefully about their capital distribution. The European Central Bank told banks in the eurozone to freeze dividend payments.

The Bank of England also warned insurers on Tuesday that they should think carefully about paying dividends or staff bonuses this year, but did not force them to cancel scheduled payouts.

"We expect them to pay close attention to the need to protect policyholders and maintain safety and soundness, and in so doing to ensure that their firm can play its full part in supporting the real economy throughout the economic disruption arising from COVID-19," Deputy Governor Sam Woods said in a separate letter.

--Editing by Ed Harris.

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