HSBC, StanChart shares tumble in Hong Kong after banks scrap dividend

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The Bank of England welcomed moves by Britain's biggest banks to suspend dividends and said it also expects them not to pay cash bonuses to senior staff during the coronavirus epidemic.

"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.

The five largest banks in the United Kingdom had originally planned for 7.4 billion pounds ($9.3 billion) in dividend payments over the next two months.

United Kingdom banks, including HSBC Holdings Plc, agreed to scrap dividends and buybacks this year after the regulator pushed to contain spending to shareholders as the coronavirus pandemic upends the industry. The bank said it had sufficient capital to support the previously announced dividend payment of 2019 and that "when it is appropriate to do so", but not before the fourth quarter of this year, the Board will re-examine the situation and will update the market accordingly.

In a series of coordinated statements the United Kingdom largest lenders - including Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered confirmed on Tuesday that they would temporarily halt shareholder payouts and share buybacks for 2019 and throughout 2020 following discussions with the Bank of England.

HSBC will not make payments with respect to the final dividend of 2020, in the light of recent recommendations by the European Central Bank. Barclays was due to pay more than 1 billion pounds on Friday.

Shares in domestic-focused lenders Lloyds and Barclays shed more than 5 per cent each in early trading, while HSBC and Standard Chartered saw their stocks fall 7.7 per cent and 6 per cent respectively by 0708 GMT. This is to ensure that the banking system as a whole deploys capital in support of the economy.

The PRA said banks entered the epidemic, which has put Britain into lockdown, with strong capital positions, enough to withstand a severe United Kingdom and global recession.

Commenting on the scrapping of payouts, Barclays chairman Nigel Higgins said: "These are hard decisions, not least in terms of the immediate impact they will have on shareholders". In addition, we think that the various actions being taken by governments and central banks to prop up economies by providing financial support to bank customers in the form of loan guarantees and wage support, will help to mitigate the impact on impairments relative to what could happen if no action was taken at all.

Several of Europe's largest lenders, including UniCredit, and Societe Generale, have already announced they will hold off paying 2019 dividends for now.

But some analysts believe that cancelling dividends could actually harm the supply of credit to the real economy.

Bank of England's drive to extend payment cuts to senior managers follows a similar move by the European Banking Authority.

They also agreed to suspend any buybacks.

HSBC's board met to discuss these requirements and concluded that the bank was obliged to delay the payment of all dividends, said the bank.

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