Britain’s banking sector on Wednesday scrapped billions of pounds in shareholder dividends and share buybacks after the Bank of England requested the move to boost liquidity and help cope with the coronavirus crisis.
The British central bank said in a statement that its Prudential Regulation Authority division had asked lenders to stop the payments until the end of the year.
It also said it expected them not to pay any cash bonuses to top staff.
In response, Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander and Standard Chartered all stated they will scrap dividends and not pursue buybacks.
“The PRA welcomes the decisions by the boards of the large UK banks to suspend dividends and buybacks on ordinary shares until the end of 2020, and to cancel payments of any outstanding 2019 dividends in response to a request from us,” the regulator said in a statement.
“The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank 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.”
Britain’s top banks have enough capital to weather severe recessions in both Britain and globally, as markets brace for a potentially huge downturn driven by the Covid-19 outbreak, according to the regulator.
“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, alongside the extraordinary measures being taken by the authorities,” it said.
The UK lenders have become the latest corporate giants to scrap dividends as big global businesses scramble to save cash and safeguard against worsening virus turmoil.
The news, combined with the worsening Covid-19 crisis, sent banking shares tumbling on London’s benchmark FTSE 100 index, which sank 3% overall in early morning deals.
“UK banks, as many businesses across the world, are scrapping dividends due to an increased need of cash to survive the coronavirus crisis in the short run,” said Swissquote Bank analyst Ipek Ozkardeskaya.
“Even if we may see a negative knee-jerk reaction from investors, the decision to hold onto the cash is the right one from a medium- and long-term perspective.
“In this respect, we expect to see a certain level of tolerance for ditched dividends,” said Ozkardeskaya.