The British banking regulator pressed firms including HSBC Holdings Plc to scrap dividends and cash payouts for its top staff as the coronavirus pandemic upends the industry.
HSBC and Standard Chartered Plc shares tumbled after they and Royal Bank of Scotland Group Plc, Barclays Plc and Lloyds Banking Group Plc canceled outstanding dividends and buybacks and said there would be no payments in 2020.
The move comes as the Prudential Regulation Authority wrote to lenders asking them to cancel payments, adding that it “expects banks not to pay any cash bonuses to senior staff, including all material risk takers.” The company statements on Tuesday didn’t mention bonuses.
The UK push to cut discretionary awards for senior managers follows a similar stance from the European Banking Authority (EBA). In its strongest warning to date, the EBA also said banks should set pay and especially bonuses at a “conservative level” during the crisis. Firms should also consider deferring awards for a longer period and paying staff in shares.
Banks are under pressure globally from volatile markets and slumping growth, but have also been at the front-end of massive support from central banks and regulators, including relief on some capital buffers and more time to tackle soured loans. The UK’s five biggest banks had planned to pay out 7.5 billion pounds ($9.3 billion) in dividends over the next two months. Barclays was due to dole out more than 1 billion pounds.
“It looks structurally bearish for the sector, namely: higher cost of equity, increased regulatory uncertainty, weaker investment cases in the event of future capital raises,” Jefferies analyst Joseph Dickerson wrote in a note, adding that HSBC is likely most at risk.
HSBC’s shares plunged 8% in London trading, while Standard Chartered tumbled 6.2%.
HSBC said it would cancel an interim dividend slated to be paid this month and also make no payouts or buybacks until at least the end of the year. In its statement on Tuesday, HSBC said that “we expect reported revenues to be impacted in insurance manufacturing, and credit and funding valuation adjustments in Global Banking & Markets, alongside higher expected credit losses.”
The bank, which generated half its 2019 revenue in Asia, has earlier said in the most extreme scenario, in which the virus continues into the second half of 2020, it could see $600 million in additional loan losses.
Standard Chartered said any decision on a final dividend for 2020 will take into account the financial performance of the group for the full year and the medium-term outlook at that time.