Virus crisis forces United Kingdom banks to axe billions in payouts

Darnell Taylor
April 3, 2020

PRA chief executive Sam Woods also wrote to heads of insurers, saying that they should pay "close attention" to the need to protect policyholders and maintain safety and soundness when considering bonuses or dividends. That recommendation requires all Eurozone banks not to make dividend payments at this time, irrespective of the strength of their own capital positions.

"The PRA welcomes the decisions by the boards of the large United Kingdom banks to suspend dividends and buybacks on ordinary shares until the end of 2020, and to cancel payments of any outstanding 2019 dividends in response to a request from us", the regulator said in a statement.

The banks, including Lloyds, the Royal Bank of Scotland, Barclays, Standard Chartered and Santander, were expected to pay out billions to shareholders.

Banks are not likely to need the extra money they save from scrapping dividends, the PRA said, but the extra headroom will allow them to support the economy this year.

The decisions will be felt most immediately by Barclays shareholders who were set to receive more than £1bn on Friday.

Britain's banks have enough capital to weather severe recessions in both the United Kingdom and globally, as markets brace for a potentially huge downturn, the PRA said.

"The PRA 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".

Bank shares fell on Wednesday on London's benchmark FTSE 100 index, which sank three per cent overall in early morning trading. This is to ensure that the banking system as a whole deploys capital in support of the economy.

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The Small Business Administration has made $349 billion available in loans for millions of small businesses across the nation. Nonprofit organizations or 501 (c)(19) veterans organizations are also eligible, as well as healthcare providers.

During the 2008 financial crisis, most banks were still paying out dividends before they received huge government bailouts, engendering much criticism and bitterness from the public.

While most United Kingdom banking bosses have already received their cash bonuses for 2019, the decision is expected to cut into chief executive pay for 2020.

He asked them to confirm their decision by Tuesday evening.

The Bank of England's announcement come after it faced mounting pressure to follow in the footsteps of the European Central Bank, which last week urged lenders to stop dividend payments and share buybacks until at least 1 October.

Moreover, some analysts contend that scrapping dividends could actually hurt the economy.

Italy's UniCredit and Spain's BBVA have both said this week that their top management will waive their 2020 bonuses.

Bank of England's drive to extend payment cuts to senior managers follows a similar move by the European Banking Authority.

"The board regrets the impact this cancellation will have on our shareholders", HSBC said in a statement.

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