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The ECB threatens the bank dividend… but only that of the weakest

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The European Central Bank (ECB) has made the banking dividend the best button to press to receive the attention of entities regarding their alert messages. Supervisors see a recession coming in the face of an abrupt exit from the negative rate scenario combined with a possible gas embargo and asks banks to be prudent and prepare to digest the risks that are yet to come, while entities look enthusiastically at the effects of a long-awaited rate hike on their interest margin. The financial sector is aware that there are risks in the macroeconomic scenario, but for now it is looking inward and showing convinced that the positive impact of the rate hike on their accounts will outweigh the negative ones let them come for the macro part.

The bank is “blinded” (expression used by Guindos) with the rise in interest rates after several years in the negative and, in the face of warnings from prudential supervisors and that they cover themselves with provisions, they take away iron and excuse that precisely that it is the supervisor’s job, to “supervise”. The sector trusts its balance sheets, remembers that the default is going down, that there are provisions enough since 2020 for the outbreak of the pandemic and the risks will be manageable. And in the face of this attitude, the ECB has pushed the button. The head of Supervision of the European body, Andrea Enria, mentioned the word “dividends” on Thursday, just nine months after he lifted his veto. And the sector neither wants to understand what it is about nor does it see that it is the moment to mention it.

However, in what appears to be a coordinated action, the two supervisors, the European and the Spanish (and after a rumor that has lasted for weeks about the adjustment of dividends) suggest that the dividend distribution of the banks will depend on how well each one does their homework. The ECB will study next week to ask the entities of the euro zone to adjust their capital plans (and with this the dividend plan) to a recession scenario. In other words, those entities that, in a crisis environment, are capable of maintaining the solvency levels required by the regulator will have fewer problems in being able to remunerate their shareholders. However, the magnifying glass will be on those others that have more difficulties in maintaining an adequate capital ratio to face a recession.

The supervisor is undone to use the dividend as a supervisory tool, that is what Enria said last week at a convention in which he participated in Italy, but he left the word there this Thursday. What does seem on this occasion is that, if there is finally a recession, the veto or adjustment will not be global, as happened in the worst moments of the pandemic. So, specifically in March 2020, the supervisor asked all banks to cancel the distribution of dividends to take them to reserves with which to be able to better face what could come. The other way to reinforce capital is with issues of CoCos or subordinated debt.


The bank is risking its value on the stock market, already penalized by the regulatory excess and the low rate scenario, and the rise announcement has been like a oxygen pump, especially among the more domestic entities and with a balance sheet more dependent on the credit portfolio, such as CaixaBank, Sabadell, Bankinter and Unicaja. If the market takes seriously the threat to the dividend that it is dropping, the supervisor can erase part or all of the advanced path.

The entities insist that what is going to happen, more than a rise in interest rates, is a normalization of them. However, the supervisors add that this normalization will require an increase in effort financial situation of families and companies that will be added to the inflation of energy and raw material prices. The future comes with uncertainty. That is, in this area, the only message in which they agree.

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