Bank Dividends Face European Regulatory Pressure Until 2021

(Bloomberg) -- European Union financial authorities urged banks to hold off paying dividends, awarding senior bonuses and buying back shares until at least January to help banks conserve capital to weather the pandemic.

The European Systemic Risk Board said the toll of the crisis has only become clear in the last two months, and suggested restrictions should last beyond the European Central Bank’s request that banks limit payouts until October. Even more restraint could be needed “if additional data indicate a slower release from containment policies and potentially a deeper economic slump,” the ESRB said on June 8.

The regulator’s statement is “another confirmation of our cautious view on capital returns,” JPMorgan Chase & Co. analysts led by Kian Abouhossein wrote in a note on Tuesday. The analysts don’t expect further dividends to be paid this year, despite some banks indicating a review in the second half. The analysts assume share buybacks will resume in 2022.

The ECB’s move in March kept about 27.5 billion euros ($31 billion) of capital in the banking system to absorb losses and lend to companies hit by the coronavirus outbreak. Europe’s approach contrasted with much of Wall Street, where banks suspended buybacks but pressed ahead with dividends.

The ESRB also repeated its call for insurers to curb payouts to protect their capital buffers, and said monitoring of liquidity risks in the sector “needs to be improved.”

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