HSBC and Standard Chartered said on Wednesday they would cancel their dividends and not launch any share buy-backs in 2020 after a financial regulator in the United Kingdom asked the country's biggest lenders to suspend payments to investors and not pay cash bonuses to senior staff in light of the coronavirus pandemic roiling economies worldwide.
The banks, which are based in London, but generate much of their revenue in Asia, were among six lenders who said they would suspend their dividends as part of a coordinated response following a request by the Prudential Regulation Authority (PRA), a regulatory arm of the Bank of England.
"The board recognises the current and potential material impact on the global economy as a result of the coronavirus pandemic and the important role that HSBC has in helping its customers to manage through the crisis and to have resources to invest when recovery occurs," HSBC said in a statement. "HSBC has a strong capital, funding and liquidity position; however, there are significant uncertainties in assessing the time period of the pandemic and its impact."
The novel coronavirus, known as SARS-CoV-2, has infected more than 842,000 people worldwide and has likely sent the global economy into a recession as it has uprooted daily life across Asia, Europe and the United States, with several countries instituting lockdowns, airlines grounding much of their fleets and millions of people losing their jobs.
"The board fully recognises the importance of dividends to the group's owners," Standard Chartered said in a stock exchange filing on Wednesday. "However, suspending shareholder distributions at this time will allow the group to maximise its support for individuals, businesses and the communities in which it operates whilst at the same time preserving strong capital ratios and investing to transform the business for the long term."
On Tuesday, the PRA, HSBC's and Standard Chartered's chief regulator, asked the biggest banks operating in the UK to suspend their dividend payments and buy-backs and said it "expects" banks not to pay cash bonuses to senior staff and material risk-takers.
The UK is following in the footsteps of European regulators who ordered lenders to suspend dividends and buy-backs last week in light of the pandemic's effects on economies on the continent.
"We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions, but the extra headroom should help the banks support the economy through 2020," the regulator said.
HSBC, one of three lenders alongside Standard Chartered authorised to issue currency in Hong Kong, had been set to pay its final interim dividend of US$0.21 a share on April 14, but will now not make that payment.
The bank said it would make no dividend payments or repurchase shares until the end of this year and would review its dividend policy "once the full impact of the pandemic is better understood, and economic forecasts for global growth in future years are clearer."
Standard Chartered said it would not make its final 2019 dividend payment of US$0.20 a share and suspend its US$500 million buy-back programme announced last month. StanChart reports on April 29 and will update its guidance then.
HSBC said in February that it expected about US$600 million of provisions for additional loan losses if the pandemic drags into the second half of the year, but that was before conditions worsened in Europe and the US. The bank is scheduled to update its guidance when it reports its first-quarter results.
Big companies have faced pressure to table share repurchases and suspend payments to investors in recent weeks as millions of people have found themselves out of a job as cities from London to New York have ground to a halt in order to stem the spread.
The announcement comes days after HSBC said it would delay thousands of job cuts as part of a planned overhaul announced in February because of the "extraordinary impact" of the pandemic.
The reshaping - the third major restructuring by the lender in a decade - is part of a big bet that HSBC chief executive Noel Quinn is making on future growth in Asia.
Quinn, who was permanently appointed to the top job this month, has said that the bank would shift capital from underperforming businesses in Europe and the US to growth markets, such as Hong Kong and mainland China.
HSBC said on Wednesday that its performance in the first quarter has been "resilient" despite difficult economic conditions and its credit performance "has held up well".
"However, as a result of the global impacts of Covid-19, and its impact on interest rates, market levels and the forward economic outlook, we expect reported revenues to be impacted in insurance manufacturing, and credit and funding valuation adjustments in Global Banking & Markets, alongside higher expected credit losses," the bank said.
The bank is expected to announce its first quarter results on April 28.
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