Irish banks to be hit by EU dividend ban
IRISH banks may not be allowed to pay dividends over the next few years because of a European Union ban on banks paying dividends while receiving state aid, NCB Stockbrokers said yesterday.
The European Commission this week reiterated earlier comments on restructuring aid to financial institutions, saying that banks should not use State aid to pay dividends when their activities don't generate sufficient profits.
"This would seem to suggest that hybrid buybacks, such as those conducted by the Irish banks, would now fall foul of Brussels," NCB analysts Brian Devine and Ciaran Callaghan wrote in a research note.
While State aid cases are "extremely complicated" and there might be some room for dividend payments, it is likely that the State preference shares held on behalf of the Government will have to be repaid or converted into ordinary shares before any dividend payments can be made, the analysts added.
This would mean that the two big banks, which are currently losing billions of euro, would need to be making more than the €350m needed to pay the preference shares, before there is any chance of a dividend for shareholders.
The forecasts came a day after Finance Minister Brian Lenihan reiterated that the State is likely to be increasing the stake it owns in the major banks rather than decreasing it.
The ban on dividends is academic at the moment; none of the three big lenders listed on the stock exchange are currently paying dividends.
Many small shareholders in Irish banks have traditionally relied on the banks to generate income and both AIB and BoI have traditionally pursued a "progressive" dividend policy which involves gradual, incremental rises in dividend payments over the years. The policy continued until last November when AIB scrapped its final dividend as bad debts would surge.
In May last year, BoI told analysts it would not cut the dividend even if earnings fell. Three months later, the bank admitted it would cut its dividend in half and two months after that it scrapped the dividend entirely, saying it would not resume payment until financial difficulties eased.
- Thomas Molloy
Irish Independent
