Via AFR:
The Reserve Bank of New Zealand ordered Australia’s big four banks, which dominate the banking sector there, to stop paying dividends back to their parent banks in Australia, to build up more earnings to protect its economy from the COVID-19 crisis.
The move by New Zealand regulators, which have taken a hard line on the Australian owned banks, follows similar moves by regulators overseas to restrict distributions to shareholders to ensure banks are strong enough to withstand growing losses as businesses shut down due to the coronavirus struggle to repay debts.
Geoff Bascand, RBNZ’s deputy governor, said on Thursday the central bank wanted to “further support the stability of the financial system during this period of economic uncertainty” and had “agreed with the banks that during this period there will be no payment of dividends on ordinary shares, and that they should not redeem non-CET1 capital instruments”.
Bravo. As the UK and Europe have made clear, the moral hazard in allowing banks to pay dividends amid massive public support is unconscionable, via The Guardian:
Britain’s largest banks have agreed to scrap nearly £8bn worth of dividends in light of the coronavirus crisis, giving banks an additional cushion to weather an economic downturn.
The Bank of England has also ordered lenders to cancel plans for cash bonuses for executives, as it asked financial institutions to boost their strength ahead of a likely recession.
In a series of coordinated statements the UK’s largest lenders – including Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered confirmed on Tuesday that they would temporarily halt shareholder payouts and share buybacks for 2019 and throughout 2020 following discussions with the Bank.
The cancellation of the 2019 dividends will give the banks an additional financial cushion worth nearly £8bn in total, as they are pushed to increase lending to businesses and households during the Covid-19 lockdown.
In a letter to chief executives, the head of the Bank’s Prudential Regulation Authority – which is in charge of financial stability – said any bonuses that have not yet been paid out should also be scrapped.
“The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months,” PRA boss Sam Woods told executives.
And the AFR:
In Europe, the second epicentre of the coronavirus crisis, governments and the European Central Bank (ECB) have moved to ban dividend payments by companies as infection numbers and deaths balloon at shocking rates, inviting questions about how shareholder returns and state support can coexist.
France’s finance minister, Bruno Le Maire, has demanded a ban on dividend payments by companies receiving state support. The minister threatened any company with penalties, including additional tax liabilities, if it pays dividends until the virus is beaten.
In Germany, the government has advised that all companies receiving financial assistance should stop dividend payments to prevent capital being distributed to shareholders that could be allocated to fight the virus.
As well, the optic of banks disgorging capital on the eve of having to raise capital is ridiculous.
I’m not going to pretend that APRA has the balls to replicate the excellent European approach. It is captured and corrupt and the Morrison Government would have a conniption as its “mums and dads” yield-chasers were forced to actually be investors.
But there is a middle ground that APRA should take. The banks should be forced to issue dividends as equity re-investment programs while the public support lasts.
It will boost bank equity right when they need it and investors will be forced to take some, if not all, responsiblity for their stupidity.
It is a politically palatable alternative to dividend cuts.
