At the weekend, the UBS boss did not want to know anything about changes in the distribution to shareholders. Now the big banks are giving in – the background.
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UBS boss Sergio Ermotti sees his bank capitalized enough to continue paying dividends.
Photo: Michael Buholzer / Reuters
In the dispute over the dividend payments, the two big banks UBS and Credit Suisse agreed with the financial market regulator (Finma) on Thursday on a surprising compromise. There is not a complete dividend freeze that Finma would have preferred to see. To do this, both banks split their payments.
The first half of the distribution will be made in spring, the second half will take place after extraordinary general meetings in autumn, depending on the quarterly results. In other words, if the crisis worsens, the second tranche of the distribution can be canceled.
Last Sunday, UBS boss Sergio Ermotti did not want to know about changes in the distribution plans. «UBS is well capitalized and strategically well positioned. We are able to pay the promised dividend and at the same time provide the economy with liquidity, ”Ermotti had told the“ SonntagsBlick ”.
Focus on UBS
An almost word-for-word wording is now in the communiqué from Thursday, in which UBS announces its split payment – but with the addition that UBS now wants to “comply with Finma’s request”.
According to financial circles, supervision has massively increased pressure on UBS in recent days. “UBS was the focus of the question because its dividend payment of CHF 2.6 billion is far higher than that of Credit Suisse, which wants to distribute CHF 678 million,” says a source with knowledge of the processes.
For example, Finma once again urged the board of directors of both major banks this week to rethink the distribution plans. So far, nothing has been revealed about the exact content of the letter.
Meetings at the highest level
According to reports, there have been discussions at the highest level between the supervisory board and the board of directors of both major banks in the past few days on which the compromise solution that has now been communicated has been worked out.
According to several sources, UBS also came to the conclusion that adhering to an unchanged distribution threatens to permanently damage the relationship with Finma.
Supervision initially benefited the banks during the crisis and agreed to remove the countercyclical capital buffer. This buffer provided banks with additional equity to hedge mortgage loans. That should slow banks down in lending.
The deletion of the buffer should now free up CHF 6 billion in additional funds that the supervisory authorities hoped would flow back into the real economy via loans.
The dispute escalated
When both big banks made no move to change their dividend plans at the end of March, Finma tightened the tone and announced that the relief freed up by the relief would be reduced by the amount of the planned or actually made distributions.
But even that initially did not impress those responsible, as Ermotti’s interview statements from last weekend show. “The Finma then increased the pressure,” said an insider.
Finma itself does not comment on the further course of action and refers to its letter to the board of directors, in which the supervisory authority again reminded the change in the distribution plans. Finma is satisfied with the compromise found. “Finma sees the precautionary measure of the two institutes as a way of dealing responsibly with the great uncertainties of the Covid 19 crisis and with shareholder expectations,” said the regulator.
Pressure from abroad
Industry circles indicate that Finma itself came under international pressure. Because both the supervisors of the ECB and the Bank of England have successfully led banks in their respective countries to cut dividend payments.
In early April, the British banks Lloyds, RBS, Barclays, HSBC, Santander and Standard Chartered announced in a concerted action to cut their dividends for 2019. At the end of March, the Commerzbank announced in an ad hoc announcementthat she will not propose a dividend for 2019.
No cuts with insurers
Interestingly enough, nothing is known in the insurance industry regarding cancellation of dividends. According to Finma, the supervisory authority is also in contact with the insurance industry. “We have been in contact with many other financial institutions on the subject of a prudent distribution policy in the past few weeks and have explained and made our position clear,” said Finma spokesman Tobias Lux.
The Zurich Insurance Group paid its dividend after the Annual General Meeting. And Swiss Re wants shareholders to approve a 5 percent dividend increase and a new share buyback program of CHF 1 billion next week.
The corona crisis could hit insurers at least as hard as the banks: Because, on the one hand, they have to pay damages from death policies or canceled major events. Furthermore, insurers are major investors and suffer accordingly from the stock market turmoil. So far, nothing is known of a fire letter from the supervisory authority to large insurers.
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