Investors have pummelled UK banks today, sending the FTSE 350 banks index tumbling after lenders suspended dividend payments amid the coronavirus crisis.
Barclays, HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered and Santander all halted payouts yesterday following pressure from the Bank of England’s Prudential Regulation Authority (PRA).
Traders have today responded by selling the big lenders’ shares, which now provide less of a return to investors. The FTSE 350 banks index was 7.5 per cent lower by midday.
HSBC’s share tumbled 8.5 per cent, Standard Chartered dropped 7.5 per cent, and Barclays shed 6.5 per cent.
“With more and more companies cutting dividends and buybacks, as well as bonuses and salaries, the year 2020 is likely to be an extremely painful one for shareholders,” said Michael Hewson, chief market analyst at trading platform CMC Markets.
He said pension funds would be particularly hard-hit by the decision to cut dividends, as in some cases they rely on the income for payouts.
The lenders had been due to pay out over £8bn between them in 2019 dividends, with HSBC the biggest payer.
But the PRA urged them to hold off and to conserve cash to absorb expected losses during the coronavirus. It will also free up more money to lend to struggling UK businesses.
Lee Wild, head of equity strategy at Interactive Investor, said: “A few short weeks of dividend suspensions and cancellations look set to become a long hard slog for income seekers as companies rush to save cash amid the unprecedented coronavirus lockdown.”
UK bank dividend suspension weighs on FTSE
The UK’s FTSE 100 index of blue-chip stocks also tumbled today following the banks’ decision. It was down 3.6 per cent at midday at 5,469 points.
Data which showed the UK’s manufacturing sector taking the biggest hit in March in eight years also weighed on investors’ minds.
As well as suspending dividends, the UK’s biggest lenders said they would hold off from share buy-backs for the time being.
Barclays Chairman Nigel Higgins said the moves were “right and prudent, for the many businesses and people that we support”.
The decision by UK banks came a week after the European Central Bank (ECB) asked Eurozone lenders to skip dividend payments and share buybacks until October at the earliest, to free up profits for lending.