8 International Financing Review April 4 2020Top news
Dividend futures collapse amid grim
earnings outlook
People & Markets Regulators, governments press companies to axe dividendsBY CHRISTOPHER WHITTALLFutures contracts tied to
European company dividends
have plunged to their lowest
level since at least the eurozone
sovereign debt crisis, as a wide
RANGEûOFûlRMSûLOOKûSETûTOûHALTû
payouts to shareholders because
of the economic fallout from the
coronavirus.
The Euro Stoxx 50 index
dividend futures contract
expiring in December – which
captures dividend payments
from mid-December 2019 to
mid-December 2020 – has more
than halved in value from above
€120 less than a month ago to
about €51 on Friday.That is far below the previous
low close of €69 for the front-
end dividend futures contract
recorded at the height of the
eurozone crisis, according to
2ElNITIVûDATAûGOINGûBACKûTOûTHEû
start of 2011.
The collapse in dividend
expectations comes in the wake
of European regulators
demanding banks suspend
dividend payments and
government pressure on
COMPANIESûOUTSIDEûTHEûlNANCIALû
sector to stop returning money
to shareholders. More broadly,
fears of a crippling global
recession is also encouraging
companies to stockpile cash.
“This is something that wehaven’t seen in the past:
governments and even central
banks telling large parts of the
index not to issue dividends is
unprecedented,” said Kokou Agbo-
"LOUA ûGLOBALûHEADûOFûmOWûSTRATEGYû
and solutions at Societe Generale.
“It’s a massive correction.”
The largest UK banks have
axed interim or quarterly
dividends in 2020 and agreed
NOTûTOûPAYûTHEIRûlNALûû
dividends, which they were
about to start paying out,
following instructions from the
Bank of England’s Prudential
Regulation Authority. Most
prominent European banks have
also now suspended dividends
FORûTHEûûlSCALûYEARûFOLLOWINGûBonfire of the bank dividends
People & Markets UK and most eurozone banks axe payouts after regulatory pressureBY CHRISTOPHER SPINK,
STEVE SLATERBritain’s banks have axed
dividend payouts and most
major peers in the eurozone
have suspended them after
BEINGûASKEDûTOûDOûSOûBYûlNANCIALû
regulators. The authorities want
banks to build war chests for
lending to help stave off the
deep recession that will result
from the coronavirus pandemic.
The move was most marked in
Britain, where the Bank of
England gave banks little option.
Within hours, all the major
banks, including HSBC and
BARCLAYS, said they would not
pay interim or quarterly
dividends in 2020. They also
HALTEDûPAYMENTûOFûTHEIRûlNALû
2019 dividend, wiping out
£7.9bn (US$9.8bn) due to be
paid. That included US$4.3bn
due from HSBC, a move that
angered many of the bank’s
army of retail shareholders in
Hong Kong and prompted a 10%
sell-off in its share price.Most eurozone banks also
scrapped or suspended their
dividends following pressure to
do so by the European Central
Bank and the European Banking
Authority.
SANTANDER, the eurozone’s
BIGGESTûBANK ûCANCELLEDûITSûlNALû
2019 dividend worth €2.1bn and
said it would wait until “there is
more visibility of the effects of
the Covid-19 crisis” before
proposing any future payments.
BNP PARIBAS, another of the
Continent’s biggest dividend
payers, also said late on Thursday
ITûWASûSUSPENDINGûITSûlNALûû
payout. It said the cash would be
held in reserve, and after October
1 it may distribute those reserves
to shareholders in place of the
dividend, depending on market
conditions.
SOCIETE GENERALE had already
CANCELLEDûITSûlNALûûDIVIDEND û
following similar moves by ING,
UNICREDIT and INTESA SANPAOLO
earlier in the week. However,
most banks said they might still
make payments covering 2019,but only after October 1 in line
with the ECB’s guidance.
The ECB explicitly said
dividends already proposed did
not have to be cancelled but
urged banks that had not yet held
their annual general meetings to
change their proposals – which
Santander did on Thursday.
Swiss banks are taking a
different tack despite their
regulator, Finma, urging them to
halt dividends. Neither UBS nor
CREDIT SUISSE have amended their
AGM agendas for April 29 and 30
respectively, asking
SHAREHOLDERSûTOûAPPROVEûlNALû
2019 dividends.
In the US, the largest banks
said they had no plans to halt or
cut their dividends. CITIGROUP
CEO Michael Corbat said the
bank was well positioned to
keep making its dividend
payments and would do so. US
banks have halted share
buybacks, which are a far bigger
part of their capital distribution
policies.
European regulators alsostepped up pressure on banks to
stop cash bonuses for staff this
year to save money. Banks in
Britain and elsewhere mostly
resisted those calls – saying that
is a decision for later in the year.BOE THUMBSCREWS
Britain’s banks were in effect
given little choice on dividends
by the Bank of England’s
Prudential Regulation Authority,
which threatened to take
supervisory action against them
if they did not.
“The PRA stands ready to
consider use of our supervisory
powers should your group not
agree to take such action,” PRA
CEO Sam Woods said in a letter
to each bank’s chief executive.
The BoE moved quickly
because some payments were
imminent. It wrote to banks on
Tuesday afternoon and told
them to make a decision within
hours, which they did. That was
because Barclays was due to
make its payment on Friday, one
person at a rival bank said.5060708090100110120130FRONT-END EURO STOXX 50 INDEX
DIVIDEND FUTURES CONTRACTSource: Refinitiv€30/12/1030/12/1130/12/1230/12/1330/12/1430/12/1530/12/1630/12/1730/12/1830/12/4 IFR Top news 2327 .p 2 - 12 .indd 8 03 / 04 / 2020 19 : 29 : 30