Coronavirus crisis forces UK banks to axe billions in payouts

Britain’s banking sector on Wednesday scrapped billions of pounds (dollars) in shareholder dividends and share buybacks after the Bank of England requested the move to boost liquidity and help cope with the coronavirus crisis.

The British central bank said in a statement that it’s Prudential Regulation Authority division had asked lenders to stop the payments until the end of the year.

Britain’s top banks have enough capital to weather severe recessions in both Britain and globally, as markets brace for a potentially huge downturn driven by the COVID-19 outbreak, according to the regulator.

“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 said.

The UK lenders have become the latest corporate giants to scrap dividends as big global businesses scramble to save cash and safeguard against worsening virus turmoil.

The news, combined with the worsening COVID-19 crisis, sent banking shares tumbling on London’s benchmark FTSE 100 index, which sank three percent overall in early morning deals.

“UK banks, as many businesses across the world, are scrapping dividends due to an increased need of cash to survive the coronavirus crisis in the short run,” said Swissquote Bank analyst Ipek Ozkardeskaya.

“Even if we may see a negative knee-jerk reaction from investors, the decision to hold onto the cash is the right one from a medium- and long-term perspective.