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UK banks said please block dividends under 2008 bailouts: BoE
[LONDON] Some of Britain's big banks said when they were recapitalised five years ago they should be blocked from paying dividends if they took a bailout from the government, according to Bank of England meeting minutes from the time.
Britain's major banks were told to raise capital in October 2008, and those that could not raise cash had to take taxpayer bailouts - leaving Royal Bank of Scotland and Lloyds Banking Group part-owned by the government. "It was noted during the negotiations some of the major banks had indicated that they would like to be told that they could not pay dividends while they were in receipt of public equity," according to minutes from the Bank of England Court meeting on Oct 15, 2008, which were released on Wednesday.
The minutes do not name the banks who had that view.
Lloyds, which is still 25 percent owned by the taxpayer, wants to start dividend payments next month for the first time since the financial crisis. RBS is still 80 per cent owned by the government, and is not expected to resume dividend payments until 2016 at the earliest. The Bank of England will need to approve their dividend plans.
The minutes showed the BoE thought some banks would also welcome greater pressure on them to cut compensation as part of the recapitalisation plan. It was difficult for banks to individually take action and a collective approach "would make it easier to change the culture of compensation", the BoE said.
The minutes shine a light on discussions at the central bank through the 2007-09 financial crisis, and a senior British lawmaker said they showed the Bank's non-executive directors failed to hold executives to account. "By the beginning of the week of 6 October (2008), some of the UK's largest banks were facing failure without intervention, and complete seizure of the banking system threatened," the Oct. 15 meeting minutes said.
That prompted the government's recapitalisation announcement on Oct. 8, after massive liquidity support had only provided "a sticking plaster" until capital issues were addressed.
The minutes showed the BoE expected the timeframe for public ownership of banks "could be any time between six months and six years". RBS is now expected to stay in public hands for far longer than the Bank's most pessimistic view.