SocGen, Santander Denounce Dividend Ban as ECB Weighs Fallout
SocGen Warns Ban on Dividends Could Make Banks Uninvestable
(Bloomberg) -- Societe Generale SA and Banco Santander SA criticized European regulators for the de-facto ban on dividend payments, arguing the policy risks making the industry unappealing to investors and puts the region’s banks at a disadvantage to U.S. firms.
The European Central Bank’s request that lenders hold off payouts to conserve capital and keep credit flowing during the pandemic makes banks “uninvestible” and could backfire, SocGen Chairman Lorenzo Bini Smaghi said at a virtual conference on Wednesday. Speaking at the same event, Ana Botin, his counterpart at Santander, said that the ECB should reconsider its stance.
European regulators imposed the ban after the scale of the covid pandemic become evident earlier this year, seeking to ensure banks conserved capital reserves to deal with an expected wave of defaults. While investors balked at the prospect of uncertain payouts, regulators also gave lenders a number of breaks to shield them from the crisis.
Several members of the ECB’s supervisory board, who initially supported the ban, now see further extensions doing more harm than good, people with knowledge of the matter said earlier this month. They’re moving closer to allowing a resumption of payments early next year, the people said.
Bini Smaghi was directing his ire at ECB supervisory board member Felix Hufeld. They were speaking on the same panel during the 12th European SSM Round Table.
If dividend payments are tied to capital levels “then the incentive for banks is to have more capital and lend less, to support the economy less,” said Bini Smaghi, a former ECB executive board member. Botin said that regulation is giving peers across the Atlantic an advantage.
French banks, which had promised the fattest dividend payouts to their shareholders, have been leading critics of the dividend ban for months. SocGen’s stock has fallen about 64% this year, one of the worst performances on the benchmark STOXX Europe Banks Index.
Santander last week became the first major EU bank to propose a dividend on this year’s earnings. The lender will ask shareholders to approve a 10 euro cent ($0.12) per share payout at a general meeting convened for Oct. 27. The bank acknowledged that the dividend, due for payment in 2021, would depend on the ECB lifting the ban.
Bini Smaghi told Hufeld, who is also head of Germany’s financial watchdog, BaFin, that regulators need to reflect on whether their actions have harmed banks. BaFin has said it will allow smaller German lenders to make payments if they have the financial strength. BaFin said it wants the banks it supervises to conserve capital, but cannot issue a blanket ban.
Hufeld fired back by saying that lenders are well served by the regulation put in place after the financial crisis. He told Bini Smaghi that bankers shouldn’t complain when supervisors push them to build up capital in good times.
The “rather controversial” request that banks refrain from buying back shares or paying out dividends was part of a wider package which also included relief afforded to lenders, Andrea Enria, who leads the ECB’s supervisory board, said on the same panel as Botin at the conference.
Enria didn’t expand on his dividend comments, but said it isn’t yet clear how hard banks will be hit by the fallout from the pandemic. That’s a major concern for regulators who support extending the dividend ban to keep capital in the banking system as a precaution.
Enria cited the fact that payment holidays on loans will only start to expire in several European countries from now onward.
“The phase we are in right now is to brace for the impact,” Enria said before Botin spoke on the panel. “So far we don’t have a clear materialization of the deterioration of asset quality in the banks’ balance sheets. We need to encourage the banks to prepare for this impact.”
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