UK banks suspend dividend payments amid Covid-19 outbreak

In response to a request from the Prudential Regulation Authority, Barclays, Royal Bank of Scotland, Lloyds, HSBC, Standard Chartered and Santander have all agreed to scrap 2020 interim dividend payments and cancel their payments for 2019.

The PRA also asked that banks refrain from paying any cash bonuses to senior staff. It said in a statement that the banks were entering "this period with strong capital positions, more than sufficient to accommodate the combined simultaneous impact of severe UK and global recessions and a financial markets shock - as demonstrated through their performance in our recent stress tests".

The decision not to pay dividends was "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," the PRA added.

"We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions, but the extra headroom should help the banks support the economy through 2020."

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."

Meanwhile, 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.

"As we continue to build a purpose led bank we are committed to balancing the needs of all our stakeholders. Helping people, families and businesses who need our support is the right thing to do at this time of significant uncertainty."

Last week, the European Central Bank said that banks should not pay dividends for 2019 and 2020 until at least October 2020 and that they should suspend share buybacks in order to boost their capacity to absorb losses and support lending.

At 0840 GMT, RBS shares were down 5.1% at 107.10p, Barclays shares were 5.4% lower at 9.03p, HSBC was 8% lower at 417.75p, Lloyds was down 5.3% at 30.29p and StanChart was 6.6% weaker at 416.20p.

Shore Capital said that by taking this action, the banks could save around 50-150 basis points in core tier 1 capital over the course of the year, which can then be used to support lending into the economy.

"In addition, we believe that this action reduces the risk of potential future dilutive equity issuance to recapitalise balance sheets as a result of any losses generated due to higher impairments, while also helping to support tangible net asset values.

"We think that the UK banks entered this crisis well positioned to weather the storm with well-capitalised, well-funded and liquid balance sheets. The actions taken to suspend dividends and share buy-backs further strengthen their position. In addition, we think that the various actions being taken by governments and central banks to prop up economies by providing financial support to bank customers in the form of loan guarantees and wage support, will help to mitigate the impact on impairments relative to what could happen if no action was taken at all.

"Consequently, we think that, for once, this could turn out to be an economic crisis that does not necessarily translate into a full-blown banking crisis."

Richard Hunter, head of markets at Interactive Investor, said: "The announcement that banks will be suspending existing and future dividends and share buybacks ticks the boxes of moral duty and an additional capacity to lend, but from an investment perspective it removes a core plank of the case for buying bank shares."

He said the current yield of the UK banks, "soon to evaporate", is testament to the fact that some are core portfolio holdings.

He noted that Lloyds has a dividend yield of 10.5%, Barclays 9.6%, RBS 4.4%, HSBC 9% and Standard Chartered 4.9%.

"From a technical perspective, it also begs the question of how or whether these share prices will be compensated for the previous ex-dividend markdowns. On ex-dividend day, share prices are reduced by the amount of the upcoming dividend, which already applies to Barclays and HSBC (both 27th February), Standard Chartered (5th March) and Royal Bank of Scotland (26th March). It is unclear whether this can be reversed."

He added: "If the European experience is applied, the announcement of dividend and share buyback postponements had the effect of wiping off the supposed savings from the share prices and therefore market capitalisation of the banks in question."