Bank stocks plunge as they suspend dividends to save money to fight Covid-19

Shares in Britain’s biggest banks fell sharply on Wednesday morning after they became the latest banks to cancel billions of pounds in dividends as companies desperately try to save money by stopping payments to shareholders amid the coronavirus pandemic.

HSBC shares fell 7.4 percent, Barclays lost 4.6 percent, Standard Chartered lost 6.2 percent, while Lloyds lost 4.3 percent and Royal Bank of Scotland lost 4 percent.

The banks – including Nationwide, Santander and NatWest – said on Tuesday that they would not distribute their money to shareholders in the form of dividends or share buybacks until the end of the year.

Previously, the Prudential Regulation Authority (PRA) had asked the Bank of England to suspend all plans to distribute funds to shareholders.

In addition, the banks will cancel all outstanding dividends from last year.

The PRA said it “welcomes” the decision by all of Britain’s largest banks to suspend dividends and share buybacks until the end of 2020 and to cancel all outstanding payments.

UK banks have enough capital to weather severe recessions both in the UK and globally, as markets prepare for a potentially even bigger downturn, the PRA said.

“Although the decisions taken today will result in shareholders not receiving dividends, this is a sensible precautionary measure given the unique role that banks have to play in supporting the wider economy at a time of economic disruption, alongside the extraordinary measures being taken by the authorities,” it added.

According to the PRA, banks are unlikely to need the extra money they will save by cutting dividends, but the extra room for maneuver will allow them to support the economy this year.

The PRA also said it expected banks not to pay cash bonuses to their top employees.

Standard Chartered, NatWest, Santander, the Royal Bank of Scotland, Nationwide, Lloyds, HSBC and Barclays have all agreed to cancel dividends, the PRA said.

Barclays shareholders were promised a payout of £1.03 billion on Friday, Lloyds shareholders were left with £1.58 billion, while RBS was to pay its shareholders a total of £968 million. Standard Chartered was to pay its shareholders $638 million (£517 million).

Previously, banks had come under pressure to ensure that companies that needed loans to survive the crisis could continue their business.

The government has promised to support loans to small and medium-sized businesses, but many companies report that they have encountered major problems in obtaining the money.

Last week, some of the biggest lenders had to backtrack or clarify that they would not accept so-called personal guarantees from board members for loans under £250,000.

For example, this could include the business owner using their second home or personal savings as collateral for the loans, putting them at personal risk if the coronavirus lockdown lasts too long.

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 navigate the immediate and longer-term challenges they face as a result of Covid-19.”

Nigel Higgins, chairman of Barclays, said: “These are difficult decisions, not least in view of the immediate impact they will have on shareholders.”

“The bank has a strong capital base, but we think it is right and prudent to take these steps now, in the interests of the many businesses and people we support, and to ensure Barclays is well placed to continue to do all we can to help through this crisis.”