Halt dividends, bonuses to support battling clients
• CEO Jamie Dimon warns that he can see a ‘bad recession’ in 2020
The Reserve Bank has urged banks to halt dividend payouts and bonuses to shore up capital and continue lending to businesses and households pummelled by the national lockdown to contain the spread of Covid-19.
The recommendation, which is nonbinding, comes about a week after the central bank said it would allow lenders to dip into their regulatory capital reserves to support efforts to cushion the economic impact of the stay-athome order on businesses and households.
Last week, the Bank, through its banking-supervision unit, the Prudential Authority (PA), freed up at least R320bn in lending, saying it would give banks a break if they breached their liquidity coverage ratio, which is an accounting rule requiring banks to hold cash or easy-tosell assets that match the expected cash outflows over a 30-day stress period.
“The PA is of the view that capital resources must continue to be available to support the real economy and to absorb losses in the immediate and medium to long term, and as such the PA expects that no distribution of dividends on ordinary shares and no payment of cash bonuses to executive officers and material risk takers should take place in 2020,” the PA, headed by Kuben Naidoo, said in a statement.
Naidoo told Business Day on Monday that the recommendation would apply to banks irrespective of whether they took advantage of the earlier measures.
“I should stress that where governance processes have reached a point where there is a legal obligation to pay dividends, banks can pay. Where there is legal discretion, we expect them to refrain from paying.”
The PA’s recommendation comes after a similar move in the UK last week, which saw share prices of some of the country’s lenders drop after they agreed to scrap almost £8bn (R183bn) worth of dividends in order to preserve cash and give themselves room to cope with the impact of the coronavirus induced slowdown.
The Bank of England also told the commercial banks to cancel bonuses for executives to cushion themselves at a time when they were under pressure to increase lending and offer relief to distressed borrowers.
Lenders, including the likes of Barclays and HSBC, also said that they would temporarily suspend share buybacks for 2019 and 2020 after talking to their regulator.
JPMorgan Chase, the biggest US bank, could suspend its dividend if the coronavirus crisis deepened, CEO Jamie Dimon said on Monday. Dimon said that he foresaw that the group’s earnings would be down “meaningfully in 2020”.
JPMorgan could look at suspending dividends if US GDP were to fall as much as 35% in the second quarter and the unemployment rate were to rise further to 14% in the fourth quarter of the year, the CEO wrote in his annual letter to shareholders, Reuters reports.
R320bn
the amount freed by the Reserve Bank, through its banking supervision unit, the Prudential Authority, last week
JPMorgan Chase CEO Jamie Dimon said on Monday he saw a “bad recession” in 2020, and that the largest US bank could suspend its dividend if the coronavirus crisis deepens.
Dimon, widely regarded as the face of the US banking sector, is the most prominent voice on Wall Street so far to project that the economic costs of the coronavirus will not evaporate quickly. He said the bank’s earnings would be down “meaningfully in 2020”.
JPMorgan could consider the suspension of dividends if the GDP in the US were to fall as much as 35% in the second quarter and the unemployment rate was to rise further to 14% in the fourth quarter of the year, the CEO said in his annual letter to shareholders.
Questions are mounting about whether big US banks will have to cut dividends later this year as the coronavirus crisis puts a record number of Americans out of work, making it difficult for borrowers to pay back loans.
“If the board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring,” Dimon said.
Dimon, who returned to work last week after undergoing emergency heart surgery in March, highlighted several other challenges that the bank is facing.
He said that its call centres had struggled in the current environment, with many of them effectively shutting down due to local restrictions.
JPMorgan will extend benefits to customers hit hard by the health crisis, by introducing measures such as waivers for late fees and a 90-day grace period for mortgage and vehicle loan repayments, according to the letter.
Dimon also said that the vast majority of the bank’s 16,850 ATMs were “well-stocked and still functioning” to provide cash for customers.
The bank said that it had extended about $950m in new loans to small businesses and would still extend credit to small businesses.
“In both our central case scenario for 2020 results and in our extremely adverse scenario, we are lending — now or plan to do so — an additional $150bn for our clients’ needs,” Dimon said.
Even with that lending, Dimon wrote that JPMorgan had more than $500bn in total liquid assets and $300bn in incremental borrowing capacity from the Federal Reserve and Federal Home Loan Banks.
Dimon did not pass up the opportunity to suggest regulatory and fiscal policy reform, as he has often done in his previous annual letters.
“After the crisis subsides (and it will), our country should thoroughly review all aspects of our preparedness and response,” he said.
“And we should use the opportunity to closely review the economic response and determine whether any additional regulatory changes are warranted to improve our financial and economic system.
“There will be a time and place for that — but not now.”
JPMorgan will also nominate former International Business Machines CEO Virginia “Ginni” Rometty for election to its board. Rometty will become the executive chair of IBM on April 6.