European regulators have ruled out a blanket ban on bank dividends and share buybacks in response to the escalating Ukraine crisis, adopting a more relaxed prudential response than during the pandemic.
Eurozone lenders, including some with significant Russian operations, plan to pay out tens of billions of euros to shareholders this year. But Andrea Enria, chairman of the European Central Bank’s supervisory board, told the Financial Times he was optimistic about the situation. “I’m not concerned about the overall stage of dividends and buyouts,” he said.
The war in Ukraine has sent global stock markets tumbling and fears of another recession in Europe. Banks have been among the hardest hit, with the Stoxx Europe 600 Banks Index having lost around 15% of its value since Russia invaded Ukraine on February 24.
When banks were hit by a record post-war recession at the start of the pandemic, the ECB ordered them to maximize the resources available to support the European economy by abandoning dividends and share buybacks. The ban remained in place until July 2021.
Now that the restrictions have been lifted, 46 of Europe’s biggest lenders are expected to spend around 90 billion euros on share buybacks and dividends in 2022 and another 83 billion euros the following year, according to research by analysts from Citigroup.
Enria said an increase in the percentage of profits paid out by the 115 banks supervised by the ECB – to 50% now from around 45% before the Covid-19 crisis – included a “slight catch-up” after payments missed during the pandemic. . “As supervisors, we look at the capital trajectories of individual banks,” he said. “Some banks may have to revise their plans if those trajectories are affected by the fallout from Ukraine.”
A regulator familiar with the European debate told the FT that he and his peers would be “extremely cautious about blanket bans” going forward and that the preferred approach would be “more bespoke”. [restrictions] for certain specific institutions”.
Austrian Raiffeisen, which has a major Russian operation, suspended its 2021 dividend on March 1. France’s Societe Generale – another in the small group of European banks with direct exposure to Russia – said the crisis would have “no effect” on 2021 dividends. Another bank with operations in Russia, Italy’s UniCredit , said its dividend was safe, but left open the option of pausing its share buyback program if its capital ratio drops.
Enria said there was a “misperception in the market that the ECB is less positive on share buybacks than it is on dividends. In fact, we are neutral. On the contrary, the Redemptions give you more flexibility because they don’t create any expectation on future payments like dividends can.
In the United States, banks suspended their share buyback programs during the pandemic, but continued to pay ordinary dividends.
While bank executives will be relieved not to face restrictions on payments during the Ukraine crisis, several European regulators have told the FT that banks are unlikely to benefit from the kind of temporary changes that have eased the crisis. impact of the pandemic, including the lifting of certain capital requirements.
“There is no one asking, at least for the moment, that we intervene in the regulatory framework by lowering certain requirements,” said the first regulator.
A second added that he and others were cautious about reintroducing pandemic-era measures for banks because the European economy was “overheated” and financial markets were “overvalued”. “Things would have to go very badly (in the economy and the markets) before they relax,” he said.
The ECB said last week that in June it planned to stop lending to banks at rates as low as minus 1% under its targeted longer-term refinancing operations, which are in effect a central bank subsidy to the sector.
Luis de Guindos, vice-president of the ECB, said it was “closely monitoring” the impact of the war in Ukraine on financial markets. But he said: “This situation is not comparable to the one we had two years ago. . . Liquidity has not disappeared.