European Central Bank Empowers Big Spanish Banks To Pay Dividends

2021-01-28   |   by CusiGO

Santander, BBVA, caixabank and bankinter, with the authorization of the European Central Bank (ECB), can distribute 15% of their profits to their shareholders, and the bank has limited the distribution to that amount. According to market sources, these institutions are demanding a higher share, but regulators have chosen to be cautious in response to the existing uncertainty. Sabadel did not ask for authorization and therefore would not pay shareholders. Bankia will do so when it merges with caixabank in April or may. Bankinter can also list its subsidiary, direct line insurance, as a special dividend.

On March 27, 2020, the European Central Bank rejected the dividend distribution to ensure that banks maintain the highest possible capital level and can provide everything enterprises need to alleviate the economic crisis.

The banks have strongly criticized the measure because they believe it has reduced their attractiveness in the stock market and is the main reason for the decline in their share prices.

On December 15 last year, the European Central Bank partially abolished the veto power, stipulating that every institution must be authorized to distribute dividends, but limiting it to 15% of normal profits in 2020 or no more than 0.20 percentage point of CET 1 capital ratio. Of these two amounts, the bank must choose the lowest.

The measure will be reviewed in September 2021, when the health and economic situation and the potential impact of the crisis on each agency’s overdue payments will become more apparent.

The cap is well below pre crisis profits of 40% to 50%, so entities don’t like the new cap. In mid January, banks held discussions with regulators, and according to financial sources who requested anonymity, some of them asked for a larger share of profits, but failed.

However, according to data from the European Banking authority as of June 2020, Spanish banks, especially the largest, cannot exert too much pressure because their capital ratios are among the worst in Europe.

The regulator’s decision is to authorize Santander, BBVA, caixabank and bankinter to distribute dividends, but not more than 15% of profits.

Bankia, which has excess capital, will be acquired through caixabank at the time of the merger. That is to say, caixabank has requested authorization from both parties because the new entity pays dividends to all shareholders of both entities. According to shareholder estimates, this should happen in April or may next year.

Market sources said Sabadell, the most affected by the stock market, had not applied for permission and would not pay dividends from this year’s results. The agency ruled out a merger with BBVA and distributed 4 cents per share in its 2019 results, although half of it was distributed on April 1, 2020.

There is no doubt that the ECB’s decision was a setback for Santander. The entity, which is chaired by ana BOT í n, has made an additional payment of 0.10 euro for shares in fy2019. In addition, he announced at the board meeting held in Madrid on October 27 that he would sell Metalico in 2021 for 0.10 euro per share, subject to relevant authorization.

However, it will not fully comply with this recommendation. Analysts agreed that Santander would issue bonds of 0.04 Euro each on May 3. The agency did not comment, but recalled that it was possible for the authorities to make full payments to shareholders in September.

Santander lost $9.048 billion in the first nine months, but its normal profit – the ECB will consider allowing dividends – was $3.658 billion, 33% less than the same period last year.

BBVA can’t pay the same price as other sports. Analysts agreed that cash per share would reach 0.060 euro by April 9 next year. As of September, the entity had a distribution loss of $15 million and an adjusted profit of $2069 million. BBVA’s board of directors has decided that BBVA will not pay any dividends by fy2020 due to the uncertainty caused by covid-19.

As for caixabank, there is no estimate. Finally, analysts estimate that bankinter will pay out 0.042 euro per share on March 23. The source of funding for the consultation also indicates that the agency will be authorized to list its subsidiary insurance hotline this financial year. The deal is part of the dividend policy as it will generate considerable market revenue for bankinter.