• Late Friday, the ECB asked banks not to pay dividends until at least October 2020
• This includes previously declared dividends for the 2019 year, payable in 2020
• “To boost banks’ capacity to absorb losses and support lending to households, small businesses and corporates during the coronavirus (COVID-19) pandemic, they should not pay dividends for the financial years 2019 and 2020 until at least 1 October 2020. Banks should also refrain from share buy-backs aimed at remunerating shareholders.”
• Non-Euro member Central Banks have also joined the edict, including Sweden, Hungary, the Czech Republic and Norway.
• Although negative, the impact on share prices is likely to be negligible. The EuroStoxx 50 December 2020 dividend future – which is valued based on the dividends expected to be received during the 2020 calendar year – has fallen from 125 in December 2019 to 77 present as the market tries to get to grips with the extent of dividend cuts of Europe’s biggest companies.  The December 2021 future is trading at 60, 22% lower than this year's equivalent (see chart below of 2023 as an illustrative example of how dividends have been priced out)
• No word yet from the BOE and the U.K. banks but there is clearly pressure to do likewise. However, it is more complicated for the U.K. – Barclays has already gone ex-dividend and is due to pay its £1bn dividend on April 3^rd. HSBC will follow with a $4.2bn payout due on April 14^th (and is also trading ex-dividend), while Royal Bank of Scotland's £968m and Lloyds Banking Group's £1.58bn offerings are due on May 14^th and May 27^th respectively.
• To allow 2 of the 4 to pay dividends and not Lloyds and RBS would perhaps be a bridge too far, and therefore mean that the BOE pressures the banks to suspend further buybacks and dividends with respect to 2020 and beyond until greater clarity emerges.

 

Read the full press release here.