European Bank Stocks Hammered After ECB Calls for Dividend Halt Till at Least October
By Pietro Lombardi
Shares in European banks plunged Monday after the Eurozone's
central bank asked the region's lenders not to pay dividends or buy
back shares during the coronavirus pandemic.
The European Central Bank wants banks to boost their ability to
absorb losses and support the economy as the region braces for a
sharp economic slowdown caused by the pandemic. On Friday, it asked
banks not to pay dividends for 2019 and 2020 at least until Oct. 1,
adding that lenders should also avoid buybacks.
"The ECB expects banks' shareholders to join this collective
effort," it said.
Shares in European banks traded sharply lower in morning trade.
BNP Paribas SA and Banco Santander SA, among the Eurozone's largest
banks, fell 6% and 4.3% respectively, while Italy's biggest banks,
UniCredit SpA and Intesa Sanpaolo SpA, were down 5.5% and 4.3%.
"European bank balance sheets are already feeling the strain of
the economic impact of the current outbreak," Michael Hewson of CMC
Markets UK said.
Some banks, like Italy's UniCredit and Dutch bank ING Groep NV
have already taken steps to follow the ECB recommendation.
Other are expected to follow suit.
Analysts at Citi said they expect French banks, as well as other
Italian banks, to suspend dividend payments.
Monday's sell-off adds to the pain of European banks, which have
fallen sharply so far this year. Since the 2008 financial crisis,
European banks have strengthened their position, raising capital
and cleaning-up loan books. However, the economic fallout from the
current crisis will eat into their capital buffers, with
significant uncertainty over the pandemic bill making things worse.
The coronavirus pandemic has caused widespread economic shutdown as
authorities across the region try to contain the virus. Some of
Europe's largest economies, like Italy and Spain--which have the
world's highest and second-highest death tolls--are under lockdown,
and businesses across industries are struggling.
"Capital conserved by refraining from dividend distributions and
share buy-backs can also be used to support households, small
businesses and corporate borrowers and/or to absorb losses on
existing exposures to such borrowers," the ECB said.
Write to Pietro Lombardi at email@example.com
(END) Dow Jones Newswires
March 30, 2020 05:25 ET (09:25 GMT)
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