Britain's top banks said on Tuesday they would suspend dividend payments after pressure from the regulator, saving their capital as a buffer against expected losses from the economic fallout from the coronavirus.
Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Standard Chartered and the British arm of Spain's Santander all halted payouts.
The lenders had been due to pay out over 8 billion pounds ($9.93 billion) between them in 2019 dividends, with HSBC the biggest payer at $4.2 billion.
The move came in response to a request from the Prudential Regulatory Authority (PRA), which also asked banks and insurers not to pay senior staff bonuses this year.
Hong Kong shares of HSBC fell as much as 9.9% to their lowest since March 2009, while StanChart dropped 7.4% in the morning trade on Wednesday. The broader Hong Kong market index was down 0.4%.
The British lenders said they would not pay interim dividends for 2020 and scrapped planned 2019 payouts, but held off announcing changes to their executive pay policies.
The PRA said banks entered the epidemic, which has put Britain into lockdown, with strong capital positions, enough to withstand a severe UK and global recession.
"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," Barclays Chairman Nigel Higgins said.
Banks pay out dividends as a means of rewarding shareholders and disposing of excess profits, but they have the option to retain the earnings instead to preserve their capital levels.
Following ECB's Lead
The statements from British lenders come after the European Central Bank (ECB) last week asked euro zone lenders to skip dividend payments and share buybacks until October at the earliest, and use their profits to support the economy.
Several of Europe's largest lenders, including UniCredit (CRDI.MI), and Societe Generale (SOGN.PA), have already announced they will hold off paying 2019 dividends for now.
However, there are some hold outs. Swiss banking giants UBS (UBSG.S) and Credit Suisse (CSGN.S) have both said they plan to press ahead with 2019 dividends despite their home regulator urging caution over payouts.
The move to scrap 2019 shareholder distributions is expected to free up capital that banks can instead lend to businesses and consumers rocked by the coronavirus pandemic.
But some analysts believe cancelling dividends could actually harm the supply of credit to the real economy.
"We note that euro area bank market capitalization fell on 30 March by the same as the 30 billion euros 'saved' by its dividend ban on Friday 27 March," analysts at Bank of America Merrill Lynch said in a note to clients, referring to the ECB's move.
The European Union's banking watchdog said earlier on Tuesday that banks should be "conservative" in how they award bonuses to preserve capital and keep lending during the coronavirus pandemic.
However it stopped short of calling on banks to stop bonuses altogether.
Italy's UniCredit and Spain's BBVA have both said this week that their top management will waive their 2020 bonuses.
Standard Chartered signaled in a memo on Monday that the bank would likely cut its 2020 executive payouts.
PRA Chief Executive Sam Woods also wrote to heads of insurers, saying they should pay "close attention" to the need to protect policyholders and maintain safety and soundness when considering bonuses or dividends.
HSBC signaled a gloomy first-quarter earnings season for British banks, warning in its statement that it would see bad loans rising and revenues falling as the economic impact of the pandemic hits.
The coronavirus has infected more than 850,000 people globally, and killed over 42,000, a Reuters tally shows. For an interactive graphic tracking the global spread of the virus: open tmsnrt.rs/3aIRuz7 in an external browser.