FT & Divi's26 Dec 2020 12:10
Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
https://www.ft.com/content/fd5eb169-ca1c-43c1-b67e-cbc7ede9988a
Europe’s banks fear investor flight after dividend bans
Lenders are verging on uninvestable, making it harder to raise capital in the future
HSBC is listed and headquartered in London, but a third of its shares are owned by Hong Kong-based retail investors who rely on its dividend for income © Dan Kitwood/Getty Images
Share on Twitter (opens new window)
Share on Facebook (opens new window)
Share on LinkedIn (opens new window)
Share
Save
Owen Walker, European Banking Correspondent 7 HOURS AGO
41
Print this page
Bank bosses bragged at the start of the coronavirus pandemic that, unlike during the financial crisis, their institutions would help save rather than topple the global economy. But for many of their shareholders, 2020 was the year that Europe’s lenders verged on uninvestable.
Despite a modest recent rally, European bank share prices are down about a quarter this year. Industry executives fear that investor flight from the sector means lenders will find it harder to raise capital in future times of stress.
Europe’s banks have had to set aside more than €100bn of additional capital this year in preparation for souring loans — a 150 per cent increase on a year earlier. But the biggest hit to their reputation among shareholders was their cancellation of close to €40bn of dividend payments following pressure from regulators.
“That has clearly changed the investment case for European banks,” said Jaime Ramos-Martin, global equities manager at UK fund manager Aviva Investors, which controls £346bn of assets.
In March, the European Central Bank ordered the 113 lenders under its supervision to suspend €30bn of shareholder payouts within days of the coronavirus pandemic spreading to Europe.
Weeks later, the UK’s Prudential Regulation Authority, an arm of the Bank of England, called on British lenders to follow suit. After initially resisting the pressure, the UK’s five largest banks conceded and cancelled dividends worth £7.5bn.
Equity investors have traditionally viewed banks as solid, if low growth businesses that can be relied upon to pay steady income. “But dividend bans means that way of thinking does not really work any more,” said Mr Ramos-Martin.
Bank bosses have been caught in the middle of a tense showdown. On the one side, their regulators have prioritised building up capital buffers in expectation of a surge in defaults. On the other, their investors have demanded a resumption of payouts.
“All it has done is undermine investor confidence and is a major breach of tru
Sign In
Follow the stocks
