Shares of British banks plunged Wednesday after the industry cut dividends and buyouts in response to Bank of England warnings of billions of pounds being paid to shareholders during the coronavirus pandemic.
HSBC and Standard Chartered – headquartered in London but carrying out the vast majority of their business in Asia – fell more than 8% and more than 7% respectively, wiping billions of their valuations and causing a backlash in Hong Kong individual investors.
Before dividend announcement, HSBC had dropped 23% this year, or about half of its more concentrated counterparts in the UK. He was expected to pay $ 4.2 billion in dividends in two weeks.
“From the point of view of British politics, it is understandable [ . . .] but it is detrimental in Asia and around the world, ”said Ronit Ghose, analyst at Citigroup. “British institutional investors and Hong Kong retail investors hold bank shares for the dividend. They are not billionaires and hedge funds, many of these people are ordinary people. “
The declines by UK lenders focused on their home markets were also significant. Barclays – which was due to pay a £ 1 billion dividend on Friday dropped – fell more than 7%, and Lloyds and RBS fell more than 5%.
In a series of coordinated statements on Tuesday evening, Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered announced that they would cancel their dividends for 2019 and refrain from setting aside money for investor payments this year . They also undertook not to buy back any shares.
Their announcements were made as the Prudential Regulation Authority, the BoE’s oversight arm, issued a statement welcoming the cancellation of dividends.
The regulator also said it “expects” the banks and Nationwide, the construction company, to refrain from paying cash bonuses to senior executives and said they should stop putting money down. money saved for a variable salary in the “next few months”.
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The banks said they had made the dividend move following a “formal request” from the PRA and that the decision would allow them to “serve the needs businesses and households’ when the coronavirus closed, resulting in the layoff of millions of Britons and thousands of small businesses.
In letters to each of the chief executives of the six banks and Nationwide, released on Tuesday evening, the BoE warned that it was “prepared to consider using our supervisory powers” if it did not comply with its recommendations on dividends and bonuses.
By bowing to the regulator’s wishes for dividends, the banks avoided being subject to formal action. But the decision to cancel last year’s payments – worth £ 7.5 billion – will turn out to be unpopular for some investors, particularly retail shareholders who expect payment for their earnings.
“Regulatory uncertainty has once again aroused our heads,” said Jefferies analyst Joseph Dickerson. “Perhaps most importantly, if the current economic situation were to prevail for the rest of the year, it is not beyond the mind of man that some banks may need rights issues . “