Tuesday, December 1

So the bank shareholders are crying out for their dividends. Should be ignored | Banking

Vaccines are on the way and economic Armageddon will (probably) be avoided. So, given that your capital buffers look solid, is it time to allow banks to pay dividends again?

Dividend distributions were, in effect, suspended by the Bank of England in March when Covid descended on the economy. The top priority was to keep credit flowing to households and businesses, which meant keeping capital within the financial system.

There were some token whistles in the boardrooms, but Threadneedle Street got away with it: Investors in banks were told they would have to live without dividend rations until the end of 2020, at least for the sake of security. general financial. European regulators acted similarly for eurozone banks.

In July, the Bank announced that it would review the ban before the end of the year, so time is running out and the silent lobbying has begun. In their latest sets of third-quarter results, companies like Lloyds Banking Group, Barclays, NatWest and HSBC displayed their strong capital ratios and explained how their provisions for impending default were based on deeply conservative assumptions. In other words, this was not a repeat of 2008-09, when major undercap lenders collapsed or were bailed out by the state or their own shareholders.

And yes, it is true that the capital position of banks has improved enormously. In the case of Barclays, its basic ratio at the end of September was 14.6%, three percentage points above its regulatory minimum. And regulatory lows, remember, have been increased significantly since the old days.

So in theory, the shareholder complaint that regulators are making banks “non-invertible” by banning dividends has some force. Regular income is intended to be the top prize for owning bank stocks. If income doesn’t flow, the argument goes, it damages banks’ investment appeal and ultimately makes it difficult for them to raise capital in a true crisis. Banks certainly look like unpopular investments right now: Lloyds’ share price was 60p immediately before the pandemic; it is 38 pence now and dropped to 25 pence in September.

So should the Bank give the voice that everything is clear and grant the clear desire for dividends?

The answer is no. The dividend ban was a precaution against an economic emergency, and we still don’t know how serious the emergency will be.

Progress with vaccines has been extraordinary, but no one, other than the admirable trial volunteers from pharmaceutical companies, has yet been vaccinated. The logistical challenge of hitting millions of people in the general population is immense. Will normal economic life resume next summer, next fall, next winter, or sometime in 2022?

The uncertainties make it difficult to assess the true size of looming bad loans for banks. The provisioning models assume severe falls in house prices, strong increases in unemployment, etc., but it is still early and we do not know what will happen when the support that the Treasury has placed on the economy is eliminated. The £ 400bn rise in public sector debt this year is likely to mean that the scale of economic misery will only emerge once the virus has passed.

As for the “can’t be reversed” argument, it’s seductive but wrong. Capital earmarked for dividends does not evaporate if it is withheld. If the provisions are adequate, shareholders should get their cash eventually. Today’s investors can still consider the odds.

The Bank should exercise prudence and leave the dividend ban in effect for the time being. At the very least, you should wait until we know that locks are no longer required. This is still a moment of caution.

Clamor for low rates may drown fears over 737 Max

Finally, things are looking up for Boeing and the airlines that bet their fortunes on their 737 Max jet. The plane described as a “flying coffin” in a US Senate investigation has been certified safe again and could be flying by the new year.

Airlines that were drawn in by fuel efficiency and potential additional profits are more eager than ever for any marginal gains. Ryanair will be the first in Europe to receive new deliveries, and CEO Michael O’Leary, with the usual tact, has continued to tout the savings of the plane that ordered the game changer. It’s as if the intervening years saw nothing but technical delays, rather than two preventable, catastrophic accidents that claimed 346 lives.

It remains to be seen what kind of public relations work may be necessary to reassure the public. O’Leary has always argued that a cheap fare outperforms bad publicity, and he proved it when his cheap flights drew thousands of passengers to hitherto unknown locations.

More risky is the kind of promise that Steve Dickson, chief of the FAA’s US regulator, repeated last week: He put his family on the line saying he would feel comfortable seeing them aboard a 737 Max.

Boeing 737 Max plane parked on the ground at the Boeing facility at Grant County International Airport in Moses Lake, Washington.
Boeing 737 Max plane parked on the ground at the Boeing facility at Grant County International Airport in Moses Lake, Washington. Photograph: Lindsey Wasson / Reuters

John Gummer, the British Conservative government’s agriculture minister in the 1980s, memorably pioneered this tactic. Four decades later, the image of him giving a hamburger to his four-year-old daughter Cordelia is a vivid reminder of something unpleasant that possibly lurks in beef, when fears about BSE have long been forgotten.

Boeing publicists will no doubt know better than ever to parade the Dickson family on the steps of a 737 Max. Anyway, airline bosses believe that the aircraft model in question will soon once again be a question only for enthusiasts or geeks; and that cheap Max flights, like cheap hamburgers, will be eaten up quickly.

BMW’s investment in a UK factory is good news and bad news

In normal times, the overtime announcement for a UK factory could be seen as a victory for the workers. But these are not normal times for the automotive industry, and BMW decision Moving more engine production to its Hams Hall factory in the West Midlands should be treated with caution.

The German automaker will start producing new electric cars at its main Munich factory by 2024 and will increase production of traditional internal combustion engines at Hams Hall and another plant, in Austria.

Even discounting the effects of the pandemic, the UK auto industry is facing a tumultuous few years, with Brexit and the shift to electric vehicle production in the offing. The way things will go in the UK was made even clearer with the news this week of a ban on the sale of pure fossil fuel cars after 2030.

In this context, it is a disappointment to see that BMW’s investment in new technologies is directed exclusively to Germany: the Hams Hall plant has experience with hybrid technology, combining internal combustion with batteries.

All hope is not lost. European and Japanese automakers clearly value their existing factories in the UK, including the production of the BMW Electric Mini in Oxford. The decision to move more production to Hams Hall shows that the UK still has top-notch automotive capabilities, and the additional work will help workers weather a potential Brexit disruption or a protracted pandemic recovery.

However, a certain degree of skepticism is not the same as looking at a gift horse in the mouth. The extra work is fine now, but automakers know their future is electric. Lost investment now is not the end of the world, but if missed opportunities increase, it will spell trouble for the UK auto sector.

BMW has described the move as “systematically orienting its main plant in Munich towards the future.” It also leaves its UK operations focused on technology that will soon be a thing of the past.

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