British top banks suspend dividends to combat the Coronavirus pandemic

The top UK banks announced their dividend payments suspended on Wednesday. The move came as the British regulators forced the banks to focus on improving their capital to combat the economic impact of the ongoing Coronavirus.

The
Prudential Regulatory Authority (PRA) had requested the British banks for such measures on Tuesday. The banks that responded to the request and suspended dividends include HSBC (LON:HSBA), Barclays (LON:BARC), Royal Bank of Scotland (LON:RBS), Lloyds Banking Group (LON:LLOY), and Standard Chartered (LON:STAN). Originally headquartered in Spain, Santander’s unit in the UK also suspended its dividends on Wednesday.

2019 Dividends Were Worth Over £8 Billion

The lenders were expected to pay out more than £8 billion in 2019 dividends. The largest contribution was to come from HSBC with dividend payments worth £3.4 billion.

The PRA had also recommended the UK-based insurers and banks to cancel senior staff bonuses in 2020. None of the financial institutes, however, have so far responded to divulge information regarding their plans of complying with this recommendation.

With Coronavirus uncertainty at its peak, the British banks also resorted to keeping the executive pay policies unchanged for now.

In early trading on Wednesday, Barclays and Lloyds were reported trading 5% down. Standard Chartered and HSBC, on the other hand, saw an even steeper decline of 6% and 7.7% respectively.

HSBC’s Hong Kong shares were seen 9.9% down on Wednesday to match a level that was last seen in March 2009. Hong Kong shares of Standard Chartered also posted a wider 7.4% drop in the morning session. The broader market index of Hong Kong .HSI only slipped 0.4% on Wednesday.

ECB Recommended The Same Strategy To Eurozone Lenders

The aforementioned move from the top UK banks is in line with the ECB’s (European Central Bank) recommendation to the lenders in the eurozone to suspend share buyback and dividend payments until the last quarter of 2020. The central bank requested the lenders to direct their profits towards bolstering the weakening economy due to the ongoing health emergency.

Many of the prominent EU lenders including Societe Generale and UniCredit have already complied with the recommendation. Others like Credit Suisse and UBS, however, have made no such announcement so far.

Suspending shareholder distributions, as per the regulators, will improve capital for the lenders to offer financial support to consumers and businesses that have been hit hard by the pandemic. Some analysts, however, also predict that suspending dividends can end up hurting the real economy as the supply of credit is disrupted.