The European Central Bank is asking Eurozone banks not to pay dividends and not to undertake coupon payment commitments for the years 2019 and 2020 at least until the month of October. It is not a diktat, but a recommendation that sends a clear message to European banking institutions called to deal with the coronavirus emergency: "To strengthen the banks' ability to absorb losses and support the disbursement of credit to households, SMEs and companies during the coronavirus pandemic – the ECB reads in the note – dividends for the 2019 and 2020 financial years are not expected to be paid until at least October 1, 2020. Banks should also refrain from buyback programs aimed at shareholder remuneration." The recommendation has no retroactive value, Frankfurt points out, and therefore will have no effect on the coupons already disbursed. Instead, what the central bank expects is that the banks change the dividend plans that will be submitted to the approval of the shareholders' meetings scheduled in the coming weeks.
The coronavirus emergency therefore puts the dividend season at risk 2020. FIRSTonline had already talked about it a few days ago, realizing the numerous suspensions established by Italian and foreign companies in order to safeguard liquidity and assets in the face of the prospects of an unprecedented economic crisis. Attention is now focused on the banking sector, whose yields have always been at the heart of investors' appetite. But credit institutions, as per tradition in times of recession, are also a litmus test: on the one hand they are flooded with liquidity which in turn they are called upon to pass on to businesses and households, on the other they pay a very high price in terms of equity and solvency. Disbursing plenty of dividends in the midst of the Covid-19 emergency could therefore break a delicate balance.
THE ECB'S CALL FOR PRUDENCE AND THE EFB'S MOVE
The ECB's recommendation comes following the letter sent by the European Federation of Banks - currently led by Jean Pierre Mustier (CEO of Unicredit) – to the chairman of the supervisory board of the ECB, Andrea Enria.
The organization representing 5.000 European banks has taken a strong position on buybacks and coupons, asking Eurotower to have its say with the aim of "pushing" the banks to join forces, avoiding personal initiatives that could have serious repercussions on the Stock Exchange for those who decide to act alone, taking the path of suspension.
“For 2020, the FBE believes that publicly traded banks should not accumulate dividends or initiate share buybacks to maintain maximum capital preservation and the banks' boards of directors will decide at the end of the year on dividend policy and any amounts to be distributed ”, wrote the Federation.
The recommendation that arrived in the evening from the ECB was preceded by a note from the spokeswoman who had invited banking institutions to be "prudent in deciding on dividends and have a forward-looking view of risks to avoid a situation where capital needs may arise.”
If the banks follow the line drawn by the Eurotower they will be able "to keep in the system a total of 30 billion euros of higher quality additional capital". In this way the institutes will have “additional ability to lend or absorb losses at a time when this is particularly necessary,” says the head of European Supervision, Andrea Enria, in a blog on the ECB website. The central institute “expects that banks continue to finance households, small businesses and large companies”, reads the note from the Supervisory Board.
BANKITALIA: "STOP DIVIDENDS AND BONUSES"
After Frankfurt's recommendation, also comes that of Bank of Italy which is aimed in particular at institutions subject to its direct supervision, i.e. medium and small ones. “In the current emergency situation the Bank of Italy, accepting the invitation of the ECB, extends the recommendation to the less significant banks subject to its direct supervision” on the dividend stop “addressed today by the European Central Bank to significant banks”. Through a note, via Nazionale underlines that "the objective of the recommendation is to allocate profits to strengthen equity, and to put the financial system in the best position to absorb the losses that will materialize due to the health emergency and to be able to continue to support the economy”. The Bank of Italy "therefore recommends to all banks and banking groups under its supervision that at least until 1 October 2020" they will not have to pay dividends.
THE BANKS' RESPONSE E THE PRESSING OF THE AUTHORITIES
National regulators are also pressing for the institutions to suspend the coupon. Due to the coronavirus emergency, the Norwegian Financial Supervisory Authority has asked the Ministry of Finance to prevent banks and insurers from distributing dividends. In the same line, but in less peremptory tones, the position of the financial authorities of Germany and Sweden who have asked their institutions to postpone coupons and avoid bonuses to preserve the liquidity necessary to grant credit.
So far, at the corporate level, the first bank to take a step towards the stop was Banco Santander. The Spanish giant announced on Monday March 23 that it would postpone the interim coupon payment scheduled for November 2021 to 2020. CaixaBank has instead decided to halve the amount of the coupon due on its 2019 earnings.
And the Italians? Intesa Sanpaolo, Banco Bpm and Ubi Banca in recent days had confirmed their intention to propose to their respective shareholders' meetings the dividends established by the board of directors before the explosion of the coronavirus emergency. Unicredit also follows the same line, despite the initiatives taken by the CEO Jean-Pierre Mustier as president of the European Banking Federation.
"Intesa Sanpaolo announces that the agenda of the Board of Directors for 31 March next, which had already been convened on an ordinary basis in recent days, will include the examination of today's communication from the European Central Bank concerning the dividend policy in the context following the epidemic from COVID-19”, says the institute in a note.
“The issue of suspending dividends has just arrived on the table and consequently the bank needs to consult internally”, he says Ubi Bank.
"Bpm bank it will decide in the board of directors on Tuesday and it is not excluded that it will decide to modify the agenda of the next budget meeting in this regard”, declares the bank led by Giuseppe Castagna.
The board of directors of Unicredit approved the postponement of the resolutions on the dividend and on the buyback of treasury shares. The group has also decided to offer shareholder Foundations interest-free loans up to a value equal to the amount of the dividends.
After the position taken by the ECB, it will therefore be necessary to wait and see what the decisions will be.
(Last update at 10.30 on 30 March).
