Wednesday 1 April 2020 5:54 pm

FTSE 100 tumbles after coronavirus forces banks to cut dividends

The FTSE 100 closed down 3.4 per cent at 5,478 points today after the UK’s major banks were punished by investors after scrapping dividends last night.

The fall came after the index finished its worst quarter since 1987 yesterday.

Shedding more than 24 per cent of its value, the FTSE 100 was pummelled over fears over Covid-19 in the first three months of the year.

Read more: Asian stocks fall as coronavirus fears return

Investors were spooked this morning by US President Donald Trump’s government saying as many as 240,000 Americans could be killed by coronavirus.

The announcement appeared to cement containment measures in place for at least 30 more days. Trump said the next two weeks will be “very, very painful”.

‘Soggy start’ for global stocks

“Global stocks got off to a soggy start in April as economic damage wrought by the coronavirus was laid bare,” Neil Wilson, chief market analyst at Markets.com, said.

“Investors felt there was not yet enough to show the virus was at or near its peak in Europe or the US. Donald Trump reflected the mood as he warned of weeks of pain still ahead, a stark change from his rather casual approach thus far.”

Asian stocks fell overnight following Trump’s statement. The sell-off signalled investors coming to terms with how long a global economic recovery might take.

Following the worst quarter for global equities since 2008, Japan’s Nikkei 225 index tumbled 4.5 per cent and Hong Kong’s Hang Seng index dropped 2.5 per cent. China’s Shanghai composite slipped 0.7 per cent.

Bank dividends suspension hits FTSE 100

The FTSE 100 was also dragged down by the UK’s biggest banks suspending their dividends.

Under pressure from the Prudential Regulation Authority (PRA), Barclays, Royal Bank of Scotland, HSBC, Lloyds, Santander and Standard Chartered all suspended dividend payments. The banks also pledged not to buy back shares. 

Read more: Coronavirus: Barclays, Lloyds, HSBC and RBS suspend dividends

Barclays chair Nigel Higgins said: “These are difficult decisions, not least in terms of the immediate impact they will have on shareholders.”

Yet he said the move “is right and prudent, for the many businesses and people that we support”.

The FTSE 350 index of banks fell nearly 10 per cent today. HSBC and Barclay’s shares both fell 9.7 per cent while Lloyds closed more than 11 per cent down.

RBS’ shares fell 6.5 per cent and Santander’s shares fell nearly four per cent.

Other top FTSE 100 fallers included Legal & General, which sank 11 per cent, and Standard Life Aberdeen, which fell seven per cent.

Dividend suspensions ‘heavy-handed’

John Cronin, financial analyst at Irish investment bank Goodbody, said the bank dividend cut was tougher than expected.

“It was heavier-handed than we thought on two fronts,” he said in a note to investors.

“We expected that both proposed dividends – and dividends for the next six months – would be suspended, not cancelled.

“And we were surprised that the variable remuneration restrictions are wider in their application, i.e., they stretch beyond just the executive layer.”

He added that Goodbody hopes banks have simply delayed bonuses, rather than cancelled them.

“On the latter, hopefully, it will be a postponement rather than a cancellation for 2020 to the extent that banks show they can get through the worst of this crisis with their capital positions intact – which we believe they will.”

Read more: Oil prices slump again as US ramps up production

Richard Hunter, head of markets at Interactive Investor, said the suspension of bank dividends comes after their share prices already took the dividend payments into account in late March.

“It begs the question of how or whether these share prices will be compensated for the previous ex-dividend markdowns,” he said. “On ex-dividend day, share prices are reduced by the amount of the upcoming dividend. It is unclear whether this can be reversed.”

FTSE 100 hit by rising UK death toll

FTSE 100 investors were also shaken by the UK death toll rising its biggest daily amount so far yesterday, suggesting the worst is yet to come for Britain, The number of deaths from Covid-19 rose by 563 to 2,352, according to government figures.

The pound fell 0.7 per cent against the dollar to $1.234 as investors sold assets in favour of holding cash.

Read more: UK death toll jumps as 13-year-old dies from coronavirus

US stocks have also opened lower today, having suffered their worst quarter since 1987 in the first three months of the year. The Dow Jones fell to its worst on record.

The Down Jones industrial average was down 3.1 per cent today and the S&P 500 was down 3.5 per cent.

“New infected cases and deaths due to the coronavirus have hit new records yesterday,” said Charalambos Pissouros, chief market analyst at JFD Group.

“The switch back to risk-off at the turn of the quarter enhances our view not to trust a long-lasting recovery in the broader investor morale.”

UK criticised over low testing numbers

The UK government is facing growing criticism for its handling of the coronavirus pandemic. The government has been urged to ramp up testing but figures have been stuck for a week. Just 8,240 people were tested yesterday, whereas Germany is testing around 70,000 per day.

Housing minister Robert Jenrick today told Sky News that Britain is aiming to increase the number of tests for coronavirus to 25,000 a day by the middle of the month.

Read more: 13-year-old boy from London dies as UK coronavirus death toll jumps

“We now have capacity to test 12,750 people every day, we were focusing the capacity that we had on people in critical conditions, which was on medical advice,” he said. 

The World Health Organization has said testing is crucial to curtailing the spread of the virus. Investors have warned that the only real data point that can ease the sell-off is a drop off in cases of Covid-19.

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