Shares in Britain’s biggest banks fell heavily on Wednesday morning after they became the latest to scrap billions of pounds in dividends, as businesses scramble to save money by stopping payments to shareholders amid the coronavirus outbreak.
Shares in HSBC fell 7.4%, Barclays lost 4.6%, Standard Chartered was down 6.2%, while Lloyds lost 4.3% of its value and the Royal Bank of Scotland was down 4%.
The banks – also including Nationwide, Santander and NatWest – said on Tuesday that they would not be returning money to shareholders via dividends, or buying back their own shares, until the end of the year.
It comes after a request from the Bank of England’s Prudential Regulation Authority (PRA) that they suspend all plans to return money to shareholders.
The banks will also cancel all outstanding dividends from last year.
The PRA said it “welcomes” the decisions of all the UK’s biggest banks to suspend dividends and share buybacks until the end of 2020, and cancel any outstanding payments.
Britain’s banks have enough capital to weather severe recessions in both the UK and globally, as markets brace for a potentially huge downturn, the PRA said.
“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, alongside the extraordinary measures being taken by the authorities,” it added.
Banks are not likely to need the extra money they save from scrapping dividends, the PRA said, but the extra headroom will allow them to support the economy this year.
The PRA also said it expects banks not to pay any cash bonuses to their top members of staff.
Standard Chartered, NatWest, Santander, the Royal Bank of Scotland, Nationwide, Lloyds, HSBC and Barclays have all agreed to cancel dividends, the PRA said.
Barclays shareholders were expected to be paid £1.03 billion on Friday, Lloyds shareholders would have pocketed £1.58 billion, while RBS had expected to pay its shareholders a total of £968 million. Standard Chartered was due to pay its shareholders 638 million US dollars (£517 million).
It comes after banks faced pressure to ensure that businesses which need loans to survive through the crisis are able to keep their doors open.
The Government has promised to back loans to small and medium-sized businesses; however, many say they have faced serious problems in trying to get the money out.
Last week some of the biggest lenders were forced to backtrack or clarify that they would not take so-called personal guarantees from directors for loans below £250,000.
This could include using a business owner’s second home or personal savings as security on the loans, putting them at personal risk if the coronavirus shutdown continues for too long.
RBS chief executive Alison Rose said: “RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of Covid-19.”
Barclays chairman Nigel Higgins said: “These are difficult decisions, not least in terms of the immediate impact they will have on shareholders.
“The bank has a strong capital base, but we think it is right and prudent, for the many businesses and people that we support, to take these steps now, and ensure that Barclays is well placed to continue doing what we can to help through this crisis.”