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European Banks Start to Reinstate Dividends as Regulators Relax Limits

The European Central Bank (ECB) directed banks to suspend all cash dividends and share buyback in March 2020 in response to the COVID-19 pandemic. In December 2020, the ECB recommended that banks limit dividends to 15% of cumulative 2019 and 2020 profits and not higher than 20 basis points of Common Equity Tier 1 (CET1) ratio until September 2021.

In the UK, the Bank of England announced similar restrictions in early 2020. The central bank’s restrictions were partially lifted in the new year with banks encouraged to limit payouts to either 25% of profits over 2019 and 2020 combined, excluding previous dividend payments, or 0.2% of the value of their riskiest assets, whichever is highest.

European Bank Dividends Reinstated

Several European banks have started to reinstate their dividends in response to the relaxed restrictions as investors seek yield.

Barclays Plc (BCS) announced a £0.01 per share annual dividend, which represents a 0.15% forward yield. The dividend is payable on April 1, 2021 to shareholders on record as of February 26, 2021. In addition, the company intends to initiate a share buyback of up to £700 million, which translates to an additional distribution of £0.04 per share.

HSBC Holdings Plc (HSBC) announced a $0.75 per ADS interim dividend, which represents more than 10% forward yield. The dividend is payable on April 29, 2021 to shareholders on record as of March 12, 2021.

Lloyds Banking Group Plc (LYG) announced a £0.0057 per share semi-annual dividend. The dividend will be paid on May 25, 2021 with an ex-dividend date of April 15, 2021. Management intends to accrue dividends and resume progressive and sustainable ordinary dividends in the future.

In the U.S., the Federal Reserve placed similar limits on shareholder payouts by banks last summer to ensure that they would be able to lend amid the pandemic-driven malaise. In January, the central bank lifted the restrictions in the new year as long as the payout amounts were less than the average earnings over the past four quarters.

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