United Kingdom

Banks told to axe bonuses as well as their dividends

Banks are under pressure to scrap bonuses for high-flying staff during the coronavirus outbreak and support struggling businesses instead.  

Britain's big banks axed their dividend payouts en-masse today, hitting small shareholders and sending share prices tumbling, but the Bank of England has said that senior employees should also shoulder the burden and not get cash bonuses.

Such a move would hit the bumper payouts given to top executives and traders, which can run into hundreds of thousands or even millions of pounds, some of which is paid in cash and some in shares.

The biggest banks in Britain have been told to stop paying shareholders until the end of the year but are also under pressure to axe their bonuses  (Victoria Jones/PA)

The Bank of England's Prudential Regulation Authority welcomed Britain's big banks cutting dividends to conserve cash, but said that executives should also be denied payouts.

In a statement it said: 'The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months.' 

Britain’s biggest banks have scrapped billions of pounds in dividends, joining other firms that have suspended payouts, as they try to save money as business is hit by the coronavirus outbreak and lockdown.

Barclays, Lloyds, HSBC and RBS / NatWest, among others, said today that they would not pay shareholders dividends, or buy back their own shares, until the end of the year. They will also cancel all outstanding dividends from last year.

The news sent bank shares tumbling and with their stocks held widely by small investors and pension funds, it has further dented Britons' investments. Lloyds shares were trading down 7.2 per cent at 2pm, while HSBC shares were down 9.3 per cent.

Banks have been criticised for not helping small and medium-sized businesses in the coronavirus crisis, with entrepreneurs saying that the government-backed rescue schemes administered by financial institutions aren't working quickly enough.

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 that they save from scrapping dividends or bonuses, the Bank of England said, but doing so would give them extra headroom to support the economy this year.

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.

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.'

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