Global Financial Industry Shares COVID-19 Burden...Bonus and Dividend Returns

Economic Uncertainty Grows Due to COVID-19... Securing Liquidity to Provide to the Market

Official Calls from ECB, BOE, etc... Suspension of Share Buybacks to Boost Stock Prices

▲Major U.S. banks are concerned about losses due to energy company bankruptcies. The photo shows Wall Street, where the headquarters of major banks are located. (AP = Yonhap News)

[Asia Economy Reporter Kwon Jae-hee] The global financial industry is consecutively reducing employee bonuses and dividends to secure liquidity. This is because central banks around the world are engaging in quantitative easing, and they are demanding shared sacrifices from the financial sector, including banks.

According to major media on the 31st of last month (local time), UniCredit, Italy's largest global financial services group, announced that its CEO and executives will voluntarily forgo all bonuses this year. UniCredit stated, "In light of the increased uncertainty in the European economy due to COVID-19 (novel coronavirus infection), the management has made this decision to fulfill its responsibilities as a financial institution."

Earlier, the European Central Bank (ECB) officially urged, "To sufficiently secure liquidity supply capacity to the market, please prohibit dividend payments to shareholders and share buybacks at least until October." This means that the funds set aside to return to shareholders from operating or net profits should be retained for low-interest loans to households and businesses.

Andrea Enria, Chair of the ECB Supervisory Board, asserted, "A responsible attitude from the financial industry is necessary to overcome the unprecedented global economic uncertainty brought by this crisis."

The Bank of England (BOE) also sent a letter on the 31st of last month to six major banks, urging them to be "conservative" in dividend and bonus payments to secure liquidity as millions of Britons face unemployment and small and medium-sized enterprises face bankruptcy risks due to COVID-19. Although this is a 'recommendation' to commercial banks, the BOE warned, "If the recommendations are not followed, supervisory powers will be used," effectively issuing a 'mandatory order.'

The ECB expects that if major banks in the Eurozone prohibit dividend payments and share buybacks until October, at least 30 billion euros (approximately 40 trillion KRW) in liquidity can be secured.

Following these calls, six major UK banks including HSBC, Barclays, RBS, Lloyds, Santander, and Standard Chartered have decided to suspend dividend payments. They will also halt share buybacks aimed at boosting stock prices. Barclays stated, "Considering the impact on shareholders, this is a difficult decision, but we believe it is the right action to support many companies we back and customers struggling due to COVID-19."

Dutch financial groups Rabobank, ABN AMRO, and ING also announced, "We will defer shareholder dividend payments until October 1 and focus on securing lending capital."

The French government has also demanded that all companies receiving state support suspend dividend payments to secure cash for payroll and unemployment prevention.

Wall Street in the U.S. is similar. Eight member banks of the Financial Services Forum have suspended share buybacks to support households and businesses struggling due to COVID-19. The forum includes JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, and State Street.

The Financial Services Forum member banks stated in a press release, "An unprecedented threat has hit the global economy due to COVID-19. In response, we have decided to suspend share buybacks to act responsibly as financial companies." United States