PRA: no dividends and no bonuses in 2020
1 April 2020: the Prudential Regulation Authority has confirmed that the seven largest UK banks will suspend dividends and not pay cash bonuses to senior staff until the end of 2020 to ‘support the economy’ through 2020.After similar measures in Europe, the Prudential Regulation Authority (PRA) announced on 31 March that the seven largest UK banks, HSBC, Nationwide, Santander, Standard Chartered Bank, Barclays, RBS and Lloyds Banking Group will “suspend dividends and buybacks on ordinary shares until the end of 2020, and to cancel payments of any outstanding 2019 dividends”. The banks were given a short window in which to agree to the PRA’s proposals and publish a statement of their intentions.
Alongside dividend suspensions, banks will also conserve cash by not paying cash bonuses to senior staff (including all material risk takers) and boards were told to make sure they are considering the appropriateness of any accrual, payment and vesting of variable remuneration this year.
The PRA reiterated its confidence in UK banks to weather the crisis created by the effects of COVID-19, based on their recent stress test results and the actions agreed.
Commenting on the move Philippa Kelly, Head of the Financial Services Faculty at ICAEW said: “The regulator has made it abundantly clear that banks and insurers should put households and businesses first to make sure the economy remains as resilient as possible in the coming months.”
Suspending dividends and not paying bonuses will mean the banks are well-placed to “support the economy through 2020”, according to the statement. The measures will help banks fulfil the intentions behind recent government measures to support households and businesses while activity is curtailed due to coronavirus – such as mortgage holidays and overdraft interest waivers, which will challenge bank cash reserves in the short term.
The move follows the Bank of England’s actions in reducing the counter-cyclical buffer requirement to 0%, reducing the Base Rate to an all-time low of 0.1% and offering to buy an unlimited amount of corporate debt where it meets certain conditions.
A more subtly worded, but equally clear letter from Sam Woods, CEO of the PRA was received by the CEOs of UK insurers. Insurance companies were reminded “When UK insurers’ boards are considering any distributions to shareholders or making decisions on variable remuneration, we expect them to pay close attention to the need to protect policyholders and maintain safety and soundness, and in so doing to ensure that their firm can play its full part in supporting the real economy throughout the economic disruption arising from COVID-19.”