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One of the people briefed on the calls said some banks felt more strongly than others, especially HSBC and Barclays because their shares had already gone ex-dividend, meaning only those who already owned the stock before that date were entitled to receive the payout. HSBC was also worried about the reaction among its Hong Kong retail investors, who own roughly a third of the shares.
Deputy BoE governor Sam Woods threatened to resort to his âsupervisory powersâ if the lenders did not comply © Charlie Bibby/Financial Times
The conversations between Mr Woods and the CEOs did not become acrimonious, according to two people briefed on the phone calls. âNobody at our end was criticising Sam,â said one. âOnce the challenges of doing it voluntarily were made clear to him, he resorted to putting the proverbial gun to our head.â
âThere wasnât a back and forward long-running argument,â said one of the people briefed on the calls. âThey recognised the position that the banks were in vis-Ă -vis their investors, particularly those who were ex-dividend.â
On Tuesday night, the banks announced that they were cancelling payments of their 2019 dividends and withholding 2020 dividends and buybacks, in a series of co-ordinated announcements alongside the BoE that wiped tens of billions of pounds off their market value on Wednesday.
The central bank said it welcomed the decisions, which came âin response to a request from us.â It also released a series of letters between Mr Woods and the chief executives, in which he threatened to resort to his âsupervisory powersâ had the lenders not complied.
One of the people briefed on the choreography of the announcements said it was the product of a compromise. Although the regulator had technically stopped short of forcing banks to act, Mr Woodsâ letter set bankers a deadline of 8pm on Tuesday to agree to the ârequestâ and even provided a template for their own statements.
âOnce it was clear that the choice was between accepting the request or being told to do it, then all the banks chose, sensibly, the right way,â said one person briefed on the discussions. âThe outcome was the same either way.â
UK banks resisted BoE calls for dividend cuts
UK banks resisted BoE calls for dividend cuts Central bank forced to make threats of supervisory action if lenders did not fall into line The dividend power struggle calls into question the longstanding âgentlemanâs agreementâ between lenders and Threadneedle Street © PA Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) David Crow in New York, Stephen Morris and Nicholas Megaw in London 3 hours ago Print this page 19 Be the first to know about every new Coronavirus story Four out of the UKâs five largest banks resisted pressure by the Bank of England to voluntarily cancel their dividends, forcing the central bank to lay down the law, according to people familiar with the matter. On Tuesday HSBC, Barclays, RBS, Lloyds and Standard Chartered announced that they were cancelling dividends worth ÂŁ7.5bn so they could âserve the needs of businesses and householdsâ during the coronavirus shutdown. Bankers acquiesced to the BoEâs demands only after it failed to convince them to make the move of their own volition during a series of phone calls on Monday between executives and Sam Woods, deputy governor and head of the Prudential Regulation Authority, according to several people briefed on the discussions. Mr Woodsâ intention was for the banks to make the announcement without public direction from the BoE, but leaders at four of the five lenders balked at the plan, the people said. RBS, which is majority owned by the taxpayer, was the only one willing to comply. âWe all had exactly the same view,â said an executive at one of the four refusenik banks. âJust being asked to do it was not enough. We would have chosen to go ahead in paying the dividend and told the [BoE], âthanks very much for your input but we disagreeâ.â Another person briefed on the talks said: âMaking the BoE force our hands was the only way of protecting ourselves from a shareholder revolt. If we had done it of our own volition then we would have faced legal challenges.â The BoE and all five banks declined to comment. The power struggle calls into question a longstanding âgentlemanâs agreementâ between lenders and Threadneedle Street, which for decades has made British banks bend to its will with little more than a raised eyebrow. Former BoE governor Mervyn King famously persuaded Barclays to remove its controversial CEO, Bob Diamond, in 2008 in a single conversation with then chairman, Marcus Agius, without having to resort to concrete action. In lobbying against the dividend ban this week, some of the banks argued their balance sheets were strong enough to make the payouts. They pointed out that they had passed the BoEâs stress tests last year, which measured whether the lenders were able to withstand an economic shock on a similar scale to the coronavirus fallout. One of the people briefed on the calls said some banks felt more strongly than others, especially HSBC and Barclays b