Coronavirus: Big banks stop shareholder dividends until the end of 2020
The Bank of England also expects them not to pay cash bonuses to senior members of staff.
Wednesday 1 April 2020 21:42, UK
Britain's biggest banks are to halt billions of pounds in dividends to shareholders to free up more cash for the economy in the wake of the coronavirus crisis.
The announcement, which followed a request by the Bank of England, prompted shares in the lenders to fall sharply on Wednesday - pulling the wider FTSE 100 into another steep decline.
Barclays shareholders were expected to be paid £1.03bn on Friday, Lloyds shareholders would have pocketed £1.58bn while RBS had expected to pay its shareholders a total of £968m - £600m of which would have gone to the Treasury because of the government's 62% stake in RBS.
Standard Chartered, Santander, Nationwide and HSBC have also agreed to cancel dividends and share buybacks.
In total the banks had been expected to pay out more than £8bn in 2019 dividends.
Shares in HSBC fell 8% in early trading, with Lloyds Banking Group down 6%, and Royal Bank of Scotland and Barclays each off by more than 5%.
They later dropped further after the market closed, with HSBC dropping to 9%, Lloyds Banking Group down 7% and Barclays 8%.
Royal Bank of Scotland recovered slightly, with shares falling to 3%.
In the year to date, RBS was down 55%, Lloyds was down 55%, Barclays was down 54%.
The FTSE 100, which has just suffered its worst quarter since 1987 - losing a quarter of its value so far this year - fell by a further 4% on Wednesday morning. It later closed at 4%.
Meanwhile the Dow Jones Industrial average plunged by 4% at the start of trading.
Things did not improve as the day went on, with the Dow Jones sliding down further, with shares sinking more than 4%.
The cancellation of dividends follows a request from the Bank of England's Prudential Regulation Authority (PRA) that banks suspend all plans to return money to shareholders for the next nine months.
The PRA also said it expects banks not to pay any cash bonuses to their top members of staff.
However, none of the big banks opted to provide details of how they would comply with that request.
The PRA said it "welcomes" the decisions of all the UK's biggest banks to suspend dividends and share buybacks until the end of 2020, and cancel any outstanding payments.
It added: "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."
Following the 2008 financial crisis the rules governing banks were tightened to make sure they retained more capital to mitigate against severe financial shocks.
The PRA said it believes Britain's banks have enough capital to weather severe recessions caused by the coronavirus pandemic in both the UK and globally.
RBS chief executive Alison Rose said: "RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of COVID-19."
Barclays chairman Nigel Higgins said: "These are difficult decisions, not least in terms of the immediate impact they will have on shareholders.
"The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now, and ensure that Barclays is well placed to continue doing what we can to help through this crisis."
Business secretary Alok Sharma also issued a stark warning to banks, saying they should not deny businesses emergency loans during the COVID-19 crisis.
During a briefing on Wednesday evening, he said: "It would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty.
"Just as the taxpayer stepped in to help the banks back in 2008, we will work with the banks to do everything they can to repay that favour and support the businesses and people of the United Kingdom in their time of need."