Australian Banks Slump After First Lender Defers Dividend

(Bloomberg) -- Shares in Australia’s biggest banks slumped Wednesday after the Bank of Queensland Ltd. become the first to delay its dividend as the prudential regulator urged lenders to reduce payouts during the coronavirus crisis.

The Brisbane-based bank said it would defer a decision on its first-half dividend until the economic outlook is clearer, helping send the stock down as much as 7.4%. It pared losses to close 2.1% lower.

The move sparked a broader selloff among banks. Australia & New Zealand Banking Group Ltd. fell 4.9%, Commonwealth Bank of Australia dropped 3.3%, National Australia Bank Ltd. declined 4.8% and Westpac Banking Corp. slumped 5.3%. The benchmark S&P/ASX200 Index fell 0.9%.

In a further blow, S&P Global Ratings lowered its outlook on the big four banks to negative, mirroring an earlier cut to the outlook on the nation’s triple-A sovereign debt rating.

A lower sovereign rating would mean there is a “slightly reduced capacity to provide timely financial support to the systemically important financial institutions, if needed,” S&P credit analyst Sharad Jain said in a statement.

Fitch also cut its ratings on the major banks late Tuesday.

Bank stocks are widely held by retail investors for their steady stream of dividend payouts. The big four banks and Macquarie Group Ltd. combined paid out about A$25.6 billion ($15.7 billion) last year, according to Bloomberg calculations.

Retail shareholders own an average of about 47% of the major banks, meaning a suspension of dividends would be another source of pressure on household incomes, according to Morgan Stanley analysts. Australia is heading for its first recession in almost 30 years as the virus shuts down large swathes of the nation.

Read more: Westpac, National Australia, ANZ Bank to Slash Dividends: Citi

Westpac, National Australia, ANZ Bank and Macquarie are all due to release first-half earnings in late April or early May.

In a letter to banks and insurers late Tuesday, the Australian Prudential Regulation Authority made it clear it expected both dividends and executive bonuses to be cut to preserve capital.

“Dividend volatility in coming months created by this approach from APRA will unsettle many investors, particularly retail,” Citigroup Inc. analyst Brendan Sproules said in a note to clients Wednesday. “On the flip-side, more capital retained lowers the risk of substantial capital raisings and dilution to shareholders.”

John Pearce, the chief investment officer of A$85 billion pension fund UniSuper, said that while he expected the major banks wouldn’t cancel dividends entirely, they would be “materially reduced.”

“Our banks have entered this crisis in far better shape than they entered the GFC, with ample capital and liquidity buffers,” Pearce said in an update to members Wednesday. “This is just as well, because there’s no doubt that bad debts will rise -- the only question being the magnitude.”

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