As I See It: Terry Murden
Britain’s banks have announced the cancellation of this year’s dividends ‘for the good of the economy’ although, in truth, they had to be pushed into it and should have made this move already.
The Prudential Regulation Authority, together with a number of City grandees such as Sir John Vickers, former chairman of the Independent Commission on Banking, have been urging the banks to sit on their cash in case the economic impact of the virus gets so bad they may need a decent cushion against bad debt.
The fact that the banks were in a position to hand over £7.5 billion to shareholders just ten years after some of them came close to running out of money is testament to those who were tasked with the mother of all repair jobs. Now those years of waiting and cajoling RBS and Lloyds into resuming dividend payments have gone into reverse.
It would have made no sense for the Treasury to collect £600 million from its holding in RBS when it is expecting the banks to pump far greater sums into companies which now need their own balance sheets propping up.
More to the point, in the present circumstances there should not have been any need for the banks to be persuaded to hold on to their cash.
While shareholders include small private investors and charities, the main beneficiaries of dividend income are those at the top of the wealth scale and the banks should have seen that paying out millions to City institutions at this time would be bad business, and bad public relations. Scores of listed companies have already cancelled or delayed payments to preserve cash without the need for regulators to lean on them. Yet the banks will be seen as having been forced into doing the right thing.
The banks have already performed a u-turn after initially insisting on personal guarantees for the new government-backed loans. The delayed dividend decision is another missed opportunity to secure a few brownie points with a still-sceptical customer base.