B14| Saturday/Sunday, April 4 - 5, 2020 **** THE WALL STREET JOURNAL.
BUSINESS & FINANCE NEWS
U.S. banks will likely be al-
lowed to keep paying dividends
to shareholders, according to
people familiar with the mat-
ter, even as the coronavirus
pandemic threatens to create a
mountain of bad loans that
could eventually weaken the
lenders.
Some former U.S. regulators
have said the Federal Reserve
should order the largest banks
to suspend payouts to preserve
capital at a time of soaring un-
employment and business dis-
ruption that may eclipse the
2008 financial crisis.
“If things work out well,
banks can distribute income
later on,” said Janet Yellen, a
former Fed chairwoman. “If
not, they’ll have a buffer that
will be needed to support the
credit needs of the economy.”
The European Central Bank
and the Bank of England have
pressured banks to stop paying
dividend. But Fed officials are
unlikely to do so, at least in the
short term. They see key dif-
ferences in how lenders dis-
tribute capital on the two con-
tinents, the people said.
Cleveland Fed President Lo-
retta Mester said she prefers to
await the results of the next
set of the banks’ “stress tests”
in June before deciding
whether to limit dividend pay-
ments. The tests are used to
assess banks’ ability to con-
tinue lending in a crisis. Banks
are required to submit plans
showing how they would
weather a deep recession and
maintain sufficient capital by
Monday.
“Our stress test can give us
insight into where capital
should be needed,” said Ms.
Mester in an interview Thurs-
day. Any decision to halt divi-
dends lies with the five mem-
bers of the Federal Reserve
Board of Governors; Fed bank
presidents don’t have a vote.
U.S. central bankers may
fear that halting dividends now
would send a signal that they
are worried about the solvency
of the banking system. And be-
cause dividends are paid quar-terly in the U.S. instead of an-
nually as in Europe, the Fed
has the ability to reassess the
situation in the coming weeks
and months.
Ordering banks to suspend
dividend payments would be
tantamount to “kicking them in
the shins” at a time when the
government is relying on them
to continue lending through
the downturn, said Christopher
Marinac, director of research
for Janney Montgomery Scott
LLC. “It’s telling the banks they
did something wrong when in
fact they did a lot right by
building capital and strong
earnings,” he said.
Mr. Marinac estimates that
large- and medium-size banks
will distribute about $54 bil-
lion in dividends for all of
2020, or roughly $13.5 billion
per quarter.
The biggest U.S. banks, in-
cludingBank of America Corp.
andJPMorgan Chase & Co.,
already have halted share buy-
backs, which make up the bulk
of their capital distributions—a
move the Fed may see as going
a long way toward preventing
the economic downturn from
morphing into a financial cri-
sis. And, dividends comprise a
much smaller slice of the capi-
tal distributions made by U.S.
banks—roughly 25%—com-
pared with 75% in Europe.
The Financial Services Fo-
rum, which represents the big
banks, said the decision would
free up capital for loans to con-
sumers and businesses strug-
gling with the rapid economic
slowdown.
Meanwhile, banks have sig-
naled they have no intention of
cutting dividends. “From our
perspective, our dividend is
sound, and we plan on continu-
ing to pay it,”Citigroup Inc.
CEO Michael Corbat said
Wednesday in an interview on
CNBC.BYANDREWACKERMAN
ANDNICKTIMIRAOSFe d I s
Unlikely to
Halt Bank
Dividends
Former Fed
Chairwoman
Janet Yellen
says a halt will
give banks a
buffer if they
need it.Isopropyl-alcohol prices have more than tripled in the U.S. since March 10.SHAWN PATRICK OUELLETTE/PORTLAND PRESS HERALD/GETTY IMAGESwan, Japan and other nations
in Asia, where the need for dis-
infectant is less urgent. That
poses its own problems: The
time it takes to ship petro-
chemicals from Asia to Europe
has lengthened from a few
weeks to two months because
of measures to stop incoming
vessels from introducing the vi-
rus to ports, said Stergios
Zacharakis, a Platts analyst.
The higher prices could
prove to be a boon for Exxon
and Dow as well as British
chemicals company Ineos
Group, which makes isopropyl
alcohol at two plants in Ger-
many. Profit margins on alcohol
sales were already wide be-
cause the price of propylene,
the main building block for the
product, has been depressed by
oversupply.
Producers in Europe and the
U.S. typically operate at around
80% of capacity, analysts said,
but are now trying to maximize
output at their factories.
It isn’t a home run, however.
Some manufacturers are donat-
ing alcohol and hand sanitizer
to hospitals and spending
money on new operations as
they boost production.
Ineos is “running flat out” to
make alcohol at its Herne and
Moers plants in western Ger-
many, according to a spokes-
man. The chemicals group will
use some of this alcohol to
make hand sanitizer, which it
will give to hospitals for free.
Exxon’s isopropyl-alcohol
unit at its Baton Rouge plant in
Louisiana, the biggest in the
U.S., is now running at full tilt.
The company is working with
state governments to supply al-
cohol for use in disinfectants, a
spokeswoman said.
Dow plans to repurpose four
plants in North America, Eu-
rope and Latin America into
hand-sanitizer factories, a
spokesman said, lifting the
company’s sanitizer production
to around 200 metric tons for a
four-week period. Isopropyl al-
cohol will remain in short sup-
ply for the foreseeable future,
he predicted.A key ingredient in hand
sanitizers and medical disinfec-
tants has become hard to ob-
tain, triggering its price to
surge to an all-time high.
Isopropyl-alcohol prices
have more than tripled in the
U.S. since March 10. They
reached $3,160 a metric ton
Tuesday, according to S&P
Global Platts, the highest price
on record dating back to 1986.
In a sign of the strain on sup-
plies, one buyer wasn’t able to
get the niche petrochemical af-
ter offering to pay as much as
$4,900 a ton, or more than
twice the previous high, ac-
cording to Platts.
Sales of the product, also
known as IPA or rubbing alco-
hol, have vaulted in recent
weeks as the new coronavirus
swept through Europe and the
U.S., now the pandemic’s two
global centers. Isopropyl alco-
hol dissolves the viral mem-
brane and makes it difficult for
the virus to infect a person.
The spike in demand has
strained a small corner of the
petrochemical industry,
prompting a race to maximize
production by manufacturers
including Exxon Mobil Corp.
and Dow Chemical Co.
“This was a March unlike
any other March we have had,”
said Jeremy Pafford, head of
North American market devel-
opment at data provider ICIS.
“You compare it to February
and it’s night and day from a
demand standpoint.”
The shortage of isopropyl al-
cohol is posing an obstacle to
makers of disinfectant and san-
itizer as they seek to lift pro-
duction. Some manufacturers
are turning to alternative ingre-
dients. One, ethanol, has cheap-
ened because of the recent fall
in oil prices and the decline in
car traffic in the U.S. and else-
where. Shortages have been
most acute in Europe, where
restrictions on border crossings
designed to contain the virus
have made it harder to move
alcohol around the continent bytruck. The product’s price has
jumped fourfold in the region
since the final week of Febru-
ary, hitting a record €3,600
($3,940) a ton in late March.
The boom in demand stands
in contrast to other petrochem-
ical markets, which have come
under pressure following the
collapse in crude-oil prices.
Petrochemicals are derived
from oil and natural gas, and go
into products including plastics,
detergent and explosives.
There should be enough iso-
propyl alcohol in the world to
go around. Producers have the
capacity to make around 3.4
million metric tons of the in-
gredient globally each year,
said Mr. Pafford, far more than
the 2.1 million tons that were
consumed in 2019. The diffi-
culty arises in getting the
chemical to where it is needed.
European hospitals and
hand-sanitizer users are most
vulnerable because the region
produces around half as much
alcohol as the U.S. In recent
years, Europe has topped up by
buying American alcohol, but
those shipments are expected
to dry up as U.S. producers di-
vert their alcohol to domestic
buyers.
Europe is likely to respond
by importing more from Tai-BYJOEWALLACEPrice Soars for Alcohol
Used in Hand Sanitizer
Priceofisopropyl
alcoholintheU.S.Source: S&P Global PlattsNote: Data as of March 31.$3,0000 Weekly5001,0001,5002,0002,500a metric ton2000 ’10 ’20mond market-research firm.
“But it is also a difficult time
to buy a diamond,” he said, re-
ferring to store closures.
Even before the Covid-19
outbreak, prices for both
rough and retail diamonds had
been sagging due to a supply
glut coupled with declining
marriage rates among millen-
nials.
Also, in India, where
roughly 95% of the world’s di-
amonds are cut and polished,
a multibillion-dollar banking
scandal linked to prominent
jeweler Nirav Modi caused
banks to hold back on credit
to diamond processors.
With the credit crunch al-
ready cutting into Indian pro-cessors’ demand for rough di-
amonds, all diamond
processing came to a virtual
halt after Prime Minister Nar-
endra Modi in the past week
declared a national three-week
shutdown of nonessential
businesses and government
offices.
“The industry was in a frag-
ile place to begin with, and
the virus is a major blow,” Mr.
Zimnisky said. “The whole
supply chain is frozen.”
Mr. Zimnisky’s diamond-
price index, based on aggre-
gated prices for rough dia-
monds globally, has declined
11% year-to-date and is down
more than 21% over the past
five years.The diamond industry faces
a reckoning, with mines and
processing centers closed due
to the coronavirus pandemic
and demand threatened by a
looming global recession.
Market leader De Beers, a
unit ofAnglo AmericanPLC,
has canceled a diamond auc-
tion, its third planned for this
year, after its second auction
ended in early March with
sales down 28% from last
year’s event.
Meanwhile, smaller mining
companies such asPetra Dia-
monds Ltd., Dominion Dia-
mond Mines and Mountain
Province Diamonds Inc. con-
front rising risk of financial
default after virus concerns
led them to close their mines.
As miners and processors
try to survive the downturn,
the retail side of the business
is also struggling with jewelry
stores around the world
closed because of the pan-
demic.
An average-quality one-
carat diamond now carries an
average retail price of $5,300,
down from $6,200 in 2015, ac-
cording to Paul Zimnisky, the
founder of research firm Dia-
mond Analytics.
“Now is a great time to buy
a diamond,” said Edahn Golan,
who runs an Israel-based dia-BYALEXANDERGLADSTONEDiamond Business Loses Luster
An average-quality one-carat diamond now carries an average
retail price of $5,300, down from $6,200 in 2015.SAM PANTHAKY/AGENCE FRANCE-PRESSE/GETTY IMAGESANNOUNCEMENTS
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