Receiving Wide Coverage ...
Payouts approved
The European Central Bank said Tuesday “that lenders can restart limited dividend payments next year following a nine-month ban and told banks to be prudent about bonuses given the economic crisis caused by the pandemic,” the Wall Street Journal reported. “The ECB move follows a lifting of a ban by the Bank of England last week.”
“The ECB said that dividends and share buybacks need to be below 15% of the combined profits for the past two years or no higher than 0.2 percentage point of the common equity tier 1 ratio, whichever is lower. Banks need to be profitable and ‘have robust capital trajectories,’ it added.” Those conditions “are harsher than those imposed last week by the Bank of England, which limited dividend distribution to 25% of 2019 and 2020 profits combined or 0.2% of the bank’s risk-weighted assets, whichever is higher.”
“The new guidelines will last until the end of September 2021, the ECB said, at which point barring ‘materially adverse developments’ it will return to its normal supervisory assessment of banks’ capital and dividend plans,” the Financial Times said.
Fed goes green
The Federal Reserve said Tuesday it had formally joined the Network of Central Banks and Supervisors for Greening the Financial System, the Journal reported. “Joining concludes the Fed’s status as a lone holdout from an effort that counts the European Central Bank, the Bank of Japan, the Bank of Canada and many others as members.”
“The network, which launched three years ago, is a forum for central bankers and regulators to come together and discuss how their institutions can ensure their financial systems don’t worsen climate change risks, and how financial institutions might be able to lower those risks.”
“The central bank began participating in the group more than a year ago, but its formal membership is something that Democratic lawmakers have been pushing for and that Republicans have eyed warily,” the New York Times said. “The Fed’s halting approach to joining underlines how politically fraught climate-related issues remain in the United States.”
“Republicans have been particularly concerned that increased attention to climate risk by financial regulators could imperil credit access for fossil fuel and other energy companies. For instance, banks might be less likely to extend credit to those industries if regulators viewed such loans as risky and made them harder to provide.”
“The U.S. has somewhat lagged its peers abroad in looking at climate risk to the financial system, so the Fed’s membership in the NGFS is a sign that U.S. regulators are taking the risks more seriously,” American Banker reports.
Barclays fined
The U.K.’s Financial Conduct Authority fined Barclays £26 million ($34.7 million) fine “over the treatment of customers that fell into arrears or went through a difficult financial situation,” the Journal said. The FCA said that “between April 2014 and December 2018, Barclays and some affiliates failed to help some customers understand the reason behind missed payments and provided solutions that were unaffordable or unsustainable.”
“The FCA requires consumer credit firms to take measures to understand customers’ financial difficulties and to show forbearance to customers who have missed payments or are struggling financially,” the Financial Times noted.
Wall Street Journal
Day of reckoning
“A reckoning looms for commercial real estate—and its lenders,” with “small community banks especially vulnerable,” a Journal op-ed warns. Even as “the arrival of viable vaccines holds the promise of a return to something resembling normality by the middle of next year, the commercial real-estate sector may never get back to normal, and that could spell trouble for banks. Many banks are concentrated in and dependent on commercial property lending. Banks hold half of all commercial real-estate loans. The 5,000 or so U.S. community banks, with about a third of total assets, are two to three times as concentrated in commercial real-estate lending as the approximately 30 larger banks.”
“Today," the article continues, "banks are in good shape and their large commercial real-estate exposure is not yet a problem. Hopefully that continues, but the available facts suggest a challenging few years lay ahead. Many, including community banks, will weather this storm in solid shape due to some combination of loan diversification, careful underwriting and good fortune. Unfortunately, not all will be so lucky."
Home surge
Mortgages are booming outside the U.S., too. “A surge in mortgage loans is proving to be a bright spot for British lenders, as the housing market shrugs off the impact of the coronavirus pandemic and concerns about the country’s exit from the European Union. Demand for new mortgages has been a rare beacon during the pandemic. There were 97,500 mortgage approvals for house purchases in October, the highest since September 2007, according to the Bank of England.”
Quotable
“We have been quite brave to ask banks to refrain from paying dividends at this difficult juncture. But at the same time we have to be reasonable — we are now moving out of that uncertainty, a vaccine has been rolled out and the macroeconomic outlook is lifting slightly, so we cannot play god forever.” — Andrea Enria, chair of the ECB’s supervisory board, giving the green light for eurozone banks to resume paying dividends.
