No shareholder payouts

Banks cancel dividends as coronavirus squeeze looms

RBS Gogarburn

RBS will not pay a dividend to its main shareholder, the Treasury (pic: Terry Murden)

Britain’s banks have succumbed to pressure to suspend dividend payments in order to preserve their capital reserves at a critical time for the economy.

Barclays and Royal Bank of Scotland said they would not pay any 2020 dividend and also scrapped planned 2019 payouts in response to a request from the Prudential Regulation Authority.

HSBC and Lloyds are expected to follow suit following the request from the regulator for the sector to use the £7.5 billion due to shareholders as a buffer against any fall-out from the coronavirus.

In a statement, the PRA said it “also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months.”

Excluding HSBC which is heavily focused towards the Asia market, the cancellation of dividends will see the banks preserve about £4bn. This will be worth about ten times that sum in lending value.

Sir John Vickers, former chairman of the Independent Commission on Banking, last week called for the Bank of England to force the cancellations.

The move comes after the European Central Bank (ECB) last week asked euro zone lenders to skip dividend payments and share buybacks until October at the earliest, and use their profits to support the economy.

Royal Bank of Scotland said in a statement that it has decided to undertake no quarterly or interim dividend payments, accrual of dividends or share buybacks and defer decisions on any future shareholder distributions until the end of 2020.

The Board has also decided to cancel the final ordinary and special dividend payments in relation to the 2019 financial year and will not submit them to its AGM on 29 April.

RBS said it continues to maintain its robust capital and liquidity position and enters this period with more than sufficient capital to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock as demonstrated through our performance in recent Bank of England stress tests.

Alison Rose

Alison Rose: ‘we will look to resume distributions in due course’ (pic: Terry Murden)

RBS chief executive Alison Rose said: “RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of Covid-19.  

“As we continue to build a purpose led bank we are committed to balancing the needs of all our stakeholders.  Helping people, families and businesses who need our support is the right thing to do at this time of significant uncertainty.

“The board remains committed to capital returns, will continue to review the situation and will look to resume distributions to ordinary shareholders in due course.”

Barclays chairman Nigel Higgins said: “The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now.”

The decision will, however, mean the Treasury will be denied a £600 million windfall from its 62% holding in RBS which was due to pay a £968m full-year dividend payment 2019.

Comment: Banks’ dividend climbdown is a missed PR opportunity

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