Savers hurt as banks halt dividends, are insurers next?

THE City reacted with anger over the move to halt £8 billion in dividends from banks, as pressure grew for insurers to ditch their own payouts and shares tumbled.

Banks bowed to an order from the Bank of England to halt shareholder rewards, with Barclays scrapping a divi worth £1 billion due for payment on Friday.

Citigroup said the move is “a disappointment”, while Investec called it “regrettable”.

Privately, some went further still, with analysts dismissing the move as “a stunt”.

One said: “The reversal on 2019 dividends is embarrassing. As for 2020, if banks are plunged into losses then they were unlikely to propose any dividends anyway, which makes this all a bit of a stunt. All FTSE100 banks are now running on capital ratios in excess of their own targets and materially above regulatory requirements.”

Bank shares tumbled further. Lloyds was down 6% to 30p. Barclays 5% to 90p and HSBC 9% to 413p. Any bonuses not yet paid to staff will also be scrapped.

UK banks account for £1 in every £8 of dividends, a major source of support for savers who rely on the income to live and to pension funds. This could present another headache to the government in itself.

Simon French at Panmure Gordon said: “Will be interesting to see (if) political pressure grows on the Treasury to support savers whose income is poised to fall due to Covid19.”

Some now expect insurers to follow suit on divis, or be told to do so.

Aviva is due to pay £840 million in May, Legal & General £750 million in June.

Aviva declined to comment. The company noted recently that it was well capitalised but observers admit the political landscape is moving fast.

John Cronin of Goodbody said on the divi and bonus cuts: “It was heavier-handed than we thought on two fronts: i) we expected that both proposed dividends – and dividends for the next six months – would be suspended, not cancelled; and ii) we were surprised that the variable remuneration restrictions are wider in their application, i.e., they stretch beyond just the executive layer.”

A warning shot from the Bank to insurers read: “We expect them to pay close attention to the need to protect policyholders and maintain safety and soundness.”

The divis of Shell and BP, two of the biggest payers, could yet also come under threat as the oil price sinks.