The move by some of the UK’s largest banks to temporarily axe dividend payments was made to provide liquidity that could come in handy during the ongoing coronavirus crisis, according to a market commentator.
The loss of such payouts has been called “disappointing but understandable” by John Teahan, portfolio manager at RWC Partners, who said that in the long-term it was necessary.
The banks – including Natwest, Santander, and Barclays – had been under pressure from asset managers such as Legal and General Investment Managers to stop paying dividends since late March, and the Bank of England deputy governor Sam Woods had also written to them asking them to suspend payments.
Teahan said: “Whilst it is a disappointment to lose out on dividends from our bank holdings for the remainder of this year, we do understand that the Prudential Regulatory Authority is doing its job in ensuring the UK banking system is robust in facing this enormous crisis.”
“The banks themselves have done a very good job in ensuring they were in a strong position to begin with, in stark contrast to their position facing the Financial Crisis a decade ago, whilst the halt to dividends, share buy backs and cash bonuses for senior management will reinforce this strong position,” he added.
According to the portfolio manager, the banking system will be crucial in getting the economy back up and running once the pandemic is under control.
Mike Kerley, fund manager of Henderson Far East Income Fund, called the cancellation of dividends “an area of national service which we hadn’t necessarily predicted but is in line with the general trend.”
“Within Asia Pacific there is less need for these measures to be applied, although Australia and Singapore are probably most at risk. Elsewhere, banks are well capitalised and importantly have lower dividend pay-out ratios than western peers and in a lot of cases are state owned where the governments rely on dividend income to bolster revenue,” he said.
The Prudential Regulation Authority, which is part of the Bank of England, said in a statement: "Although the decisions taken today will result in shareholders not receiving dividends, they are a sensible precautionary step given the unique role that banks need to play in supporting the wider economy through a period of economic disruption."
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