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Managers neither expect nor want the ECB to lift the ban on bank dividends


The big day is coming for European banks, as the ECB publishes the results of the tests it has submitted to banks in the eurozone to assess their vulnerability to the impact of the coronavirus pandemic. In addition, you will also communicate if you decide extend its recommendation not to distribute dividends beyond October and until 2021. Regarding this second aspect, fund managers and financial advisers are very negative and neither expect nor want the 'veto' on dividends to be lifted.

Alberto Loza, senior manager and head of Institutional Relations at Norwealth, predicts that the body chaired by Christine Lagarde will maintain the veto on the banks dividend, which "will continue to allow banks to better protect themselves against the still uncertain challenges of this health crisis" . For his part, a fund manager from one of the largest bank managers in Spain does not expect a dividend either, "Except for the super well capitalized."

Across the Atlantic, the Fed tied its decision to the "stress tests." "It is the most reasonable, because the banks are going to have unprecedented losses in a very short period," puts the previous manager in context. Last week, Bankinter opened the round of semi-annual results among Spanish banks with the announcement that has gained 65% less after assuming 192 million euros of provisions by the Covid-19. This week, they present Bankia, Santander, BBVA, CaixaBank and Banco Sabadell, in that order, and similar blows to their profits are estimated.

Although the truth is that there is a lot of pressure on the ECB to eliminate the ban on dividends from banks, and the latter advanced that it would lift it as soon as the recovery is solid, everything points to maintaining it and, in any case, releasing only a select few. "Personally, I agree with safeguard the capital of banks, and one way is to eliminate the 'cash' dividend. I would not be in favor of the veto if the inflation and interest rate outlook were to rise in a few months. But, as it appears to be, both inflation and rates are going to be at lows for many years. This is going to put a lot of pressure on the banks and their returns and, therefore, pressure to protect the capital ratios ”, explains Jaime Sémelas, chief analyst and partner at Value Tree Wealth & Asset Management.

Looking back, the decision to veto the dividend from all banks may have been an "indiscriminate measure," in Semelas' opinion. "I do not know if it would have been better to discriminate against banks and veto payment only to those with reasonable doubts about their ability to generate capital organically," asks this analyst.

At the moment, the banks are not in a position to grow in profits to compensate with this growth the patrimonial cut of the dividend. However, in Norwealth they do care about the opinion that the monetary authority has on the health of the financial system and economic developments. In this sense, "that they allow the dividend would be a good sign, but not because of the technical fact itself, but because of what it would mean in terms of the confidence of the highest banking authority on the health of the economy and the financial system itself" , points out Loza, who nevertheless reiterates his vision that the ECB will maintain the veto.

One of the most critical of the ECB's performance is Alberto Roldán, an economist and former manager at houses such as Bestinver, Lloyds or BBVA: “Restricting, limiting or prohibiting the dividend is a move towards the gallery, since it only affects the prices. Nothing else. Banks will continue to spin every increment in the monetary base while the monetary transmission mechanism continues to be broken. ” In other words, "the ECB continues to give oxygen to the banks and will continue to do so because it is in a spiral from which it is not able to escape," he criticizes.


Given the prospect of banks continuing to pay dividends until 2021, investors seeking to monetize their savings on the stock market by distributing profits from listed companies should start looking at other alternatives. "What investors in banks should know is that they are there because of the improved inflation outlook ('value' approach), unlikely in the short term, or because M&A operations ('event driven' approach), as buyers or bought. They are not there for the dividend, ”remembers Semelas.

Roldán delves into criticism of the sector. "From an investor's point of view, whether or not he receives a dividend should not influence the idea that the vast majority of European banks are a very poor investment strategy, full of weaknesses", defines the economist and manager, who puts the focus on Bankia. The ECB itself clarified a few days ago that its recommendation not to pay dividends does not apply to Bankia in response to the query made by a Spanish MEP.

"What interest is it that Bankia, with such a large depreciation of value, such a weakened business and such poor fundamentals, pay or not pay a dividend?" He asks. "For me, none," he replies, "but I understand that there are managers or investors who reward this distribution."

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