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British banks step up calls to BOE to end dividend restrictions

They say raising capital from investors would be difficult if a ban remained in place

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UK banks halted dividend payments at the end of March after pressure from the Bank of England's Prudential Regulatory Authority.

London

LEADERS from some of the UK's biggest banks have taken to the airwaves in recent days to persuade the Bank of England that the ban on dividends should be eased. Upcoming third-quarter results could see such rhetoric reach a crescendo.

Last week, Standard Chartered Plc Chairman Jose Vinals and Howard Davies, chairman of NatWest Group Plc, both appeared on Bloomberg Television to argue against the restrictions. Jes Staley of Barclays Plc stressed on Friday the importance of banks' ability to return excess capital at a virtual conference hosted by the Institute of International Finance.

"Being able to distribute excess capital is very important if the world's broader economy is going to have confidence in its financial system," Mr Staley said, whose bank becomes the first of the major British banks to report earnings on Friday. "We need to keep that in mind."

It's set to be a hot topic on earnings calls across Europe for the next few weeks. On Tuesday UBS Group AG reserved US$1.5 billion to return to shareholders, although it's unlikely to deploy the funds this year. The Swiss bank, acting at the request of supervisor Finma, had previously delayed part of its 2019 dividends until the second half of 2020. Departing CEO Sergio Ermotti said on a call with investors that he hoped share buybacks could resume early next year.

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Eurozone lenders are also bristling at the de-facto ban on bank dividend payments until the start of next year.

Societe Generale SA chairman Lorenzo Bini Smaghi said at a September conference that the European Central Bank should reconsider its stance. On Friday, Ana Botin, his counterpart at Banco Santander SA, also criticised the dividend restrictions on the IIT panel. Several members of the ECB's supervisory board are moving toward allowing payments next year, people familiar with the matter have said.

UK banks halted payments at the end of March after pressure from the Bank of England's Prudential Regulatory Authority. The supervisory arm has said it will assess firms' payout plans beyond the end of 2020 in the fourth quarter this year.

Representatives of banks gathered on a call recently with officials including BOE governor Andrew Bailey to discuss the restrictions, according to people with knowledge of the meeting. One point discussed at the previously unreported meeting was that raising capital from investors would be difficult if a ban remained in place.

A spokesperson for the Bank of England declined to comment.

While American banks can pay dividends, caps announced in June prevented them increasing payouts above second-quarter levels and banned buybacks. This month the Federal Reserve extended the constraints through the rest of the year.

The lobbying in Britain is a reminder of how critical the payments are to the sector's appeal. HSBC Holdings Plc's biggest shareholder, China's Ping An Insurance Group Co, spurred a 9 per cent jump in shares after raising its stake in September and said it expects the suspension of dividend payments to be a short-term issue.

The withdrawal of these payouts has added to the pressure on the bank shares this year. Shares in UK banks have halved, hurt by both the dividend ban and multibillion-pound provisions for anticipated bad loans. New restrictions to contain the spread of the coronavirus could further hit the economy.

While bankers say their balance sheets are strong enough to resume distributions, the Bank of England has recently warned of weaknesses in British banks' ability to estimate loan losses and urged the industry to keep a better watch on the likely surge in defaults during the pandemic.

"The PRA will be reluctant to give the all clear to bank boards to pay out," said analyst John Cronin at Goodbody. With British lenders reporting third-quarter earnings from Friday, dividends will remain in focus, even if the prospect of any imminent change in the guidance remains unlikely.

The PRA "took a strong view at the beginning of the crisis", Barclays finance director Tushar Morzaria told investors in August. "I expect, to be honest, probably for the sector, nothing much will be communicated until the full-year results." BLOOMBERG

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