Britain’s high street banks are set to be forced to halt dividend and bonus payments this week because of the coronavirus crisis.
Lloyds Banking Group PLC (LON:LLOY) Barclays PLC (LON:BARC), HSBC PLC (LON:HSBA) and Royal Bank of Scotland PLC (LON:RBS) have been absent among the raft of companies suspending dividends because of the virus lockdown.
A decision by the ECB on Friday to stop dividend payments and buybacks by European banks though has put pressure on UK regulator the Prudential Regulation Authority (PRA) to follow suit, with some reports suggesting a decision this week and possibly today.
The Switzerland-based central bank overseer the Bank for International Settlements yesterday called for a global freeze on payouts.
Barclays is scheduled to pay its 6p final dividend on Friday at a cost of £1.6bn, which might encourage the regulator to act before then.
Combined, the big four banks announced £15.3bn in dividends in 2019 with around half of that due to be paid before the end of May.
However, concern on the effect on income for small shareholders and pensions funds if the cash does not materialise might yet stay the regulator’s hand, although commentators expect a halt to be imposed nonetheless.
‘Politically the plan is an easy sell since the dividend cancellation and debt forbearance plans could be pitched as the banks returning the favour that the public did for them with the bail-outs that came after the Great Financial Crisis,’ Kevin Doran of AJ Bell said last week.
Other commentators also suggested the banks would find it easier to deal with any backlash from a dividend hiatus if was seen to be the regulator’s initiative.
Share prices in all four banks have fallen sharply as the virus crisis has unfolded, with scores of businesses potentially going to the wall sending bad debts soaring.
Analysts at the US lopped off €120bn from the European banking sector’s income for the coming three years due to the impact of the crisis and front-loaded to 2020.
For Lloyds, earnings forecasts have been chopped by 98% for 2020 and 53% for 2021, while RBS forecasts were lowered by 88% and 44% for this year and next while Barclay’s price target was cut by 30% to 150p.
HSBC also had forecasts for its earnings sharply reduced, but its Asia-focus meant the cut was much less