Saturday 20 January 2018

European banks top the dividend pile, despite lower profits

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Boris Groendahl

European banks are world champions in paying out dividends, even though they rank last in profits.

In the six years through 2016, Europe's biggest banks paid out €157bn to shareholders, about 40pc of after-tax profit, according to a report published on Tuesday by the Basel Committee on Banking Supervision.

That beat the 25pc payout ratio of banks in the Americas, even though European profits were a third lower, the data show.

Irish banks have been slower than European peers to return to dividend payments after the crash.

AIB resumed its dividends with a €250m shareholder payout in the first half of the year, while Bank of Ireland owners will share a €70m payment this year.

The wider study feeds into a debate between global regulators and European banks on the impact of global financial standards.

The European Union bank lobby is one of the most vocal critics of the Basel Committee which sets global standards, and recently called on EU lawmakers to suspend implementation of two major pieces of the Basel III framework because of wavering US commitment.

Regulators argue that EU banks would be better off if they retained more earnings to bolster capital.

European banks have maintained their generosity toward shareholders even in lean years. Their capital ratios have increased in step with those of American banks, but where firms across the Atlantic relied more on retained earnings to strengthen their position, the Europeans used deleveraging and selling new shares.

"Since 2011, annual profits after tax have always been higher in the Americas and the rest of the world than in Europe," the Basel Committee said in the report.

"Overall, around 20 percent of the profits have been generated by Group 1 banks in Europe, more than 30pc in the Americas and almost half in the rest of the world. Conversely, almost 60pc of the CET1 capital raised has been raised by Group 1 banks in Europe."

The dividend analysis in Basel's study is based on a consistent panel of 91 large, internationally-active banks.

The European sample consists of 32 lenders, along with 20 from the Americas and 39 from the rest of the world. The report shows that global banks have largely closed their capital shortfalls of additional Tier 1 and other junior bonds.

Minimum requirements for common equity Tier 1, the highest-quality capital, were satisfied by all of them previously.

The 30 biggest banks, which will have to meet new requirements for total loss-absorbing capital, or TLAC, significantly closed their shortfall of such liabilities, according to the report.

Applying the final TLAC standard, the 25 of these banks that reported numbers narrowed the gap to €116bn at the end of December from €318bn six months' earlier.

Meanwhile, for 64 systemically-important banks in the European Union, a capital shortfall that had already closed reopened slightly, according to a separate report by the European Banking Authority, based on a purely EU-based sample.

In total, those banks' CET1 capital was €1.7bn short of the fully-loaded requirements of the EU's version of the Basel Committee's rules, EBA said. That gap had been closed six months' earlier. (Bloomberg)

Irish Independent

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