Pulse between banks and supervisors for the distribution of dividends. The Bank of Spain and the European Central Bank (ECB) have asked banks to exercise extreme caution with capital and raise provisions to protect themselves against high inflation and economic deterioration. Meanwhile, the banks go ahead with their plans to handsomely reward investors and its policies contemplate increases in the ‘pay-out’ and new repurchases of shares in this exercise.
The good results of banking so far this year have led entities to promise their shareholders a rain of money in 2022. The sector is on track to achieve the highest profits in recent years, it is posting double-digit returns and has capital levels well above regulatory requirements. For this reason, the banks consider that it is not necessary to put pressure on remuneration policies.
In this sense, the financial sources consulted estimate that it is the right time to cheer up some shareholders who were deprived of remuneration in 2020 due to the ECB veto due to the Covid-19 pandemic. Those same investors already saw little reason to invest in banks during the era of negative interest rates that led to entities being listed on the stock market well below their book value.
The position of the Bank of Spain and the ECB is clear: be prudent and use these profits to increase the funds intended to cover defaults that are coming due to the price crisis and the continuous rises in interest rates. This is how they have transferred it to the banks in the meetings they usually hold.
Although at the moment the supervisors are not considering a generalized veto on the distribution of dividends, knowledgeable sources indicate that it could be possible to restrict or limit shareholder remuneration in specific entities based on their capital and profitability levels. Also if any bank adopts an excessive policy such as distributing 100% of profit among its shareholders.
The bank has been quick to point out that it still has the billionaire provisions endowed during the pandemic and that for the most part has not released. In addition, although delinquency is expected to pick up in the coming months, the sector claims that it has not yet detected any signs of weakness in customer payment obligations. And in any case, they highlight their financial muscle to absorb that impact (the five big banks have a 50,000 million loan-loss provision fund together).
The sources consulted indicate that it is a tug-of-war between banks and supervisors in which each one adopts the role that corresponds to it: the Bank of Spain and the ECB asking for maximum prudence to prevent problems in the financial system and the entities defending their numbers to try to attract investors and revitalize their meager stock prices. But the reality is that the pressure is high.
Pulse at European level
Beyond the hidden fight between national entities and the Bank of Spain, the confrontation between the banking sector and supervisors over the distribution of dividends transcends Europe. The banks of the European Union They have been protesting what they consider excessive pressure from the ECB on its policies for remunerating shareholders. The feeling of the sector is that it has tightened the fence too much and comes to interfere in the commercial decisions of the entities.
The ECB, on the other hand, considers that some banks maintain overly optimistic outlook and that its forecasts are based on scenarios that draw a slight economic deterioration. Therefore, he estimates that the current provisions may not be enough to cushion a worst case scenario.
According to Morgan Stanley calculations Euro Zone banks will distribute 40,000 million in dividends this yearin addition to another 60,000 in share repurchases, which for the ECB represents an excessive distribution compared to previous years.
Bank dividends in 2022
Santander. The bank chaired by Ana Botín is on its way to closing the year with the highest profit in its history. maintains a policy of distribute 40% of the profit among its shareholders in equal parts between cash dividend and share repurchases. In charge of the results of the first semester, it has already announced a dividend of 5.83 cents per share (20% higher than the first dividend of last year) and a buyback for 979 million.
BBVA. The bank led by Carlos Torres Vila has achieved a higher profit in the first nine months of 2022 than in the entire 2021 financial year. It has a policy of allocating between 40% and 50% of the profit to remunerate the shareholder. The CEO of the bank, Onur Genç, has already indicated that this year it will distribute a “good dividend”. BBVA will pay a first dividend of 12 cents per share this year, which is 50% more than the previous year.
CaixaBank. The entity led by Gonzalo Gortázar as CEO plans to allocate between 50% and 60% of the profit to remunerate its shareholders. In the recent presentation of its strategic plan until 2024, the bank promised 9,000 million to investors during the three years that the plan will be in force.
Sabadell. The Catalan bank has increased its ‘pay-out’ for this year to a minimum of 40% (in 2021 it was 31.8%) after the improvement in results, the acceleration of commercial activity and exceeding its profitability objectives with well in advance of your strategic plan.
Bankinter. The bank, led by María Dolores Dancausa as CEO, maintains its policy of allocating half of the profit to shareholders in a cash dividend.
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