International Financing Review April 4 2020 9For daily news stories
@ visit http://www.ifre.comrecommendations from the
European Banking Authority.
-ANYûNON
lNANCIALû
companies are expected to
follow suit. France and Germany
HAVEûBOTHûSAIDûANYûlRMû
receiving state aid will have to
suspend dividends. Analysts
believe part state-owned
companies will also come under
pressure to do so, as will private-
SECTORûlRMSûSHEDDINGûSTAFFûORû
struggling in the current
climate.
“Companies are in survival
mode. They are cutting to
PROTECTûCASHmOWS vûSAIDû!GBO
Bloua.
Equity strategists at
Barclays said they expected
the economic fallout from
the coronavirus to be as
severe as the 2008 to 2009
recession, albeit briefer.
They forecast European
earnings per share will fall by
about 40% this year, before
rebounding in 2021.NEAR-TERM PAIN
The sharp fall in front-end
dividend futures contracts
makes this sell-off stand apart
from other recent equity market
slumps. Historically, longer-
dated dividends have tended to
have a greater sensitivity to
equity market declines because
of the pressure from banks’
exotics books hedging structured
products, and the higher levels
of uncertainty generally over
that time horizon, said Edmund
Shing, global head of equity
derivatives strategy at BNP
Paribas.
“However, in this event-driven
market decline, a combination
of a sharp decline in near-term
earnings visibility together with
pressure from national
regulators and governments
have driven a much larger
decline in dividend outlook on
short-term dividend futures
maturities, most notably the
2020 maturity,” Shing said. UK bankers’ cash
bonuses in line of fire
People & Markets Regulators call for deferralsBY STEVE SLATER,
CHRISTOPHER SPINKBritish and European regulators
heaped pressure on banks to cut
cash bonuses for staff as well as
axe dividends in a bid to
conserve cash. But banks have so
FARûHELDûlREûONûTAKINGûANYûACTIONû
on compensation.
UK banks axed dividends last
week in a quick response to a
request by the Bank of England’s
Prudential Regulation Authority to
do so, but they made no mention
of whether they will also cut
bonuses. Privately, they said that is
a decision for later in the year.
It could affect more than
4,500 senior bankers across
"RITAINSûBIGGESTûlVEûBANKS û
according to IFR calculations.
Most affected would be 3,
senior bankers at BARCLAYS, HSBC
and STANDARD CHARTERED, who on
average received £192,000 in
cash bonuses last year.
“The PRA ... expects banks not
to pay any cash bonuses to senior
staff, including all material risk-
TAKERS ûANDûISûCONlDENTûTHATûBANKû
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,” PRA CEO Sam
Woods wrote in a letter to all the
bank chiefs.
The European Banking
Authority also urged banks in
the eurozone to “review their
remuneration policies, practices
and awards to ensure that they
are consistent with and promote
sound and effective risk
MANAGEMENTûALSOûREmECTINGûTHEû
current economic situation”.
4HEûlVEûMAJORû5+ûLISTEDûBANKSû
last year had 4,523 staff
designated as material risk
takers, or MRTs. Many of those
are in investment bank and
trading divisions.
Barclays had 1,704 MRT staff,
or 2% of all employees. They
received £320m in aggregate as
cash bonuses for 2019. HSBChad 1,159 MRTs globally
(including 585 in its investment
bank) and they were paid
US$301m in variable cash last
year. Standard Chartered had
614 MRTs, who received
US$132m in cash bonuses.
Industry sources said banks
were likely to heed the requests
to not accrue cash for bonuses as
long as the coronavirus
pandemic lasts, potentially
through this year. At least one of
the banks is working on making
changes to its pay structure to
REmECTûTHEû02!SûREQUEST ûANDû
there is an expectation that
scrutiny on pay will build as the
coronavirus crisis extends.
But it does not mean bankers
will completely miss out on the
cash component of their bonus.
4HEREûISûmEXIBILITYûTOûPAYûMOREûOFû
any bonus in shares, or defer
awards for 2020 into future years
when there is less need to
conserve capital – continuing the
TRENDûSINCEûTHEûlNANCIALûCRISIS
The EBA acknowledged as
much. It said variable
remuneration “should be set at a
conservative level”, adding that
“a larger part of the variable
remuneration could be deferred
for a longer period and a larger
proportion could be paid out in
equity instruments”.
Some bank executives have
taken pay cuts, although it is not
CLEARûHOWûFARûTHATûWILLûlLTERû
down.
SANTANDER‘s executive
chairman Ana Botin and chief
executive Jose Antonio Alvarez
said they would halve their
compensation in 2020. The
Spanish bank said its overall
bonus policy would be reviewed
too. Rival BBVA said its top
managers would not take
bonuses this year.
INTESA SANPAOLO‘s chief
executive Carlo Messina said he
would donate €1m of his 2019
bonus to healthcare initiatives
and other top managers of the
Italian bank would also give
€5m. HSBC was hardest hit by the
news, as it prides itself on its ability
to pay dividends, and investors,
especially in Hong Kong, rely on its
reliable income. HSBC had been
due to pay a US$0.21 dividend on
April 14. The bank made 55% of its
PROlTûINû(ONGû+ONGûLASTûYEAR ûANDû
about 40% of its shareholders are
retail investors in the territory.
“Although the decisions taken
today will result in shareholders
not receiving dividends, they are
a sensible precautionary step
given the unique role that banks
need to play in supporting the
wider economy through a period
of economic disruption,” the PRA
said.
It said the banks were well
capitalised but “the extra
headroom should help the
banks support the economy
through 2020”.BUYBACKS STOPPED
London-based STANDARD
CHARTERED also halted its share
buyback programme, which
had surprisingly continued on a
daily basis. In March it bought
back £186m of shares, or 46% of
its 2020 plan.
State-backed UK bank ROYAL
BANK OF SCOTLAND said it would nolonger pay out £1.3bn of
dividends it had promised. But it
said there would be no impact
on the payment of interest on
outstanding preference shares or
Alternative Tier 1 instruments.
SG also said the decision had
no impact on coupon payments
on its AT1 bonds.US PAYOUTS CONTINUE
In the US, dividends look set to
continue for the biggest banks,
although the escalating
pandemic crisis there could see
plans quickly change, as
happened in Europe last week.
The biggest six US banks,
including JP MORGAN, BANK OF
AMERICA and Citigroup, are due to
pay about US$35bn in
dividends, representing about
23% of their shareholder capital
return plans.
The far bigger portion of the
plans is share buybacks, which
were due to total more than
US$113bn across the banks for
the 2019–20 plans approved by
the US Federal Reserve. Each
bank suspended its buyback
programmes in mid-March, but
kept their dividends in place.
Additional reporting by Philip
Scipio 4 IFR Top news 2327 .p 2 - 12 .indd 9 03 / 04 / 2020 19 : 29 : 30