More on the bank dividend Sykesnado

From Bloomie:

CaptureSome of the world’s fattest bank dividends are at risk as Australia’s four dominant banks, which together raised a record amount of equity capital last year, come under pressure to add more amid a potential rise in bad debts.

…“There’s certainly more capital raisings to come from the banks this year,” Sean Fenton, who helps oversee $1.7 billion as portfolio manager at Sydney-based Tribeca Investment Partners, said. “While the lenders will try to maintain the illusion of dividends and issue more stock along the way to boost capital, increasing capital and increasing bad debts at the same time can put pressure on dividends.”

This month, Goldman Sachs Group Inc. predicted “a gradual decline” in the payout ratio for the banks, while Morgan Stanley forecast a dividend cut by ANZ as the lender comes under pressure to boost capital. Lowering dividends would allow banks to rely less on selling new shares to beef up their buffers.

And none of these guys is predicting any kind of economic shock.


David Llewellyn-Smith
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  1. Perhaps they all need to consider their New Zealand offshoots as well? Provisioning and outright loss might become commonplace.
    ” DairyNZ estimates 85 percent of dairy farmers will post a loss this season “

  2. Macro Enthusiast

    For banks to cut their dividends, you need to see bad debts. To get bad debts, you need to see property prices fall sufficiently for banks to experience loan-loss recovery issues. The reason why banks analysts are so optimistic about dividend sustainability is that the average borrower has a big home equity buffer. But of course, it is the marginal borrower which will drive bad debts – not the average borrower. And for every 1% fall in house prices, average borrower equity drops by 2%. If you think that housing is 30% overvalued, the risk is that average equity drops by 60%. In this scenario, I think it is fair to say banks will not be able to sustain their dividends, and they will not be bond proxies.