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Dividend debate divides banking world


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Big banks’ dividend dilemma

Jamie Dimon, JPMorgan Chase chief executive, appeared to break ranks with his fellow Wall Street titans today, presenting a more cautious tone on an issue generating intense heat in the corporate world: the payment — or not — of dividends.

Companies around the world — especially those receiving direct assistance from governments — are under pressure to cut payouts to shareholders and focus on keeping up payments to workers and other stakeholders.

America’s biggest banks have so far staunchly defended their plans to continue paying dividends, but in his annual letter to shareholders Mr Dimon said JPMorgan was “not immune” to the coronavirus crisis and is exposed to “billions of dollars of additional credit losses” as it lends to businesses and individuals in need.

Some analysts argue that dividend cuts send a bad signal to shareholders, making owning shares less attractive as well as hurting investors who rely on a steady income from stocks, such as pension funds.

Ditching dividends is not confined to the banking world. Rolls-Royce, the UK aero-engines maker, today suspended its payment for the first time since privatisation in 1987. According to the futures market, dividends paid by big US companies will take nine years to recover from the downturn — the biggest hit to corporate payouts since the second world war. 

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But it is a crucial moment for the banking industry in particular, writes author Philip Augur. Just as in the financial crisis, banks run the risk of appearing tone-deaf in their response to the pandemic if they do not address issues such as bonuses and communicate clearly over dividends.

“It will require turning on its head a me-first culture. But it’s the right thing to do,” he argues. “It would also finally allow this most important of sectors to legitimately claim to be doing God’s work — whoever or whatever their god might be.”

Markets

The urge to demonstrate European solidarity and share the financial pain of the coronavirus crisis is the correct response, says Gideon Rachman, our chief foreign affairs commentator, but shared instruments such as eurobonds are the wrong solution. The danger that southern Europeans will feel abandoned by the north has to be set against the risk that northern Europeans will, at some later date, feel exploited by the south. Mehreen Khan, the FT’s EU correspondent, took part in a debate with Paolo Gentiloni, the European commissioner for the economy, to discuss the EU response to the pandemic.

Equities markets rose on Monday as investors took heart from signs the pandemic was peaking in Europe and that some governments were considering loosening their lockdowns. “The mood is ‘buy the dip’ at the first sign of the pandemic infection curve flattening,” said one strategist.

Oil prices slipped on doubts that Saudi Arabia and Russia will quickly reach a deal to reduce global supplies. G20 energy ministers will hold an emergency meeting on Friday to discuss how to respond to the collapse in demand caused by the pandemic.

Business

South Korea is now one of the world’s biggest producers of coronavirus testing kits following its success in using mass testing to contain its domestic outbreak. Global demand for tests was estimated to be about 700,000 a day in late March but is forecast to rise as much as seven-fold as the outbreak spreads and other countries see the wisdom of South Korea’s strategy of extending testing from just patients with severe respiratory problems to people who have mild symptoms or none at all.

Chart of number of companies and institutions producing commercialised Covid-19 test kits, by country

 
The automobile industry shutdown in Europe and North America is set to cost more than $100bn in lost revenues if factories remain closed until the end of April. Lost sales are forecast to reach 2.6m cars in Europe, worth €66bn, while in North America they will hit 2m, worth $52bn.

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The sports industry has taken a big hit from the crisis as nearly all large events succumb to lockdowns. Broadcasters are changing business models to be less reliant on live sport and sponsors are slashing spending. Consultancy KPMG predicts the “Big Five” football leagues and their clubs in England, Spain, Germany, France and Italy face a collective hit of almost €4bn in lost broadcasting, sponsorship and match-day revenue if their seasons are abandoned.

Global economy

Construction activity in mainland Europe and the UK collapsed in March as building sites were closed and personnel and equipment shortages disrupted those that were still open. Many construction companies have given equipment such as safety masks to hospitals and now do not have enough for themselves. 

FT analysis shows regulators’ relaxation of capital requirements has freed up $500bn of capital for lenders around the world to help business absorb the pandemic shock. One analyst commented: “The banking sector has suddenly been transformed from a nominally capitalist enterprise into effectively a state entity. It’s temporary, but it is significant.”

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Fourteen Latin American and Caribbean countries have requested urgent help from the IMF as the region braces for its worst recession in 50 years, thanks to a toxic mix of coronavirus, weaker commodity values, the oil price crash and capital flight. The outlook for developing countries is bleak. States that were already financially stretched have been hit by the collapse of economic activity, making western-style rescue packages impossible. For more news on health in developing countries sign up for the FT Health newsletter. 

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Readers respond

Glockenspiel says: 

Working from home full time has taught me that I would like to work in the office a couple of days a week — and no more. Time to catch up with colleagues in person and have face-to-face meetings, with the other half of the week at home to actually get work done with fewer interruptions, thereby increasing productivity. Limited time in the office would also reduce the number of unnecessary meetings. Seems like an ideal balance. There’s no need to schlep in every workday.”

The essentials

A sense of normality may soon be returning to Austria, set to be the first country in Europe to ease its lockdown. Other countries will be scrutinising the move closely. In the UK, the pandemic response is being led by Dominic Raab, the foreign secretary, while Prime Minister Boris Johnson remains in hospital with the virus.

Chart showing that Germany’s Covid-19 testing has ramped up, while the UK lags behind. Daily tests per million people, by number of days since first reported case

The latest in our new series of Live Q&As to help manage the pandemic’s impact on your life featured Andrew Hill and Emma Jacobs from our Work and Careers team on how to deal with working at home.

Controversy surrounds business interruption insurance. Businesses say they have been paying their premiums for years and should be able to claim for coronavirus-related interruptions but insurers insist that pandemics are explicitly excluded. Here’s an explainer from insurance correspondent Oliver Ralph.

Final thought

One of our most-read stories over the weekend was an essay by novelist Arundhati Roy on the global crisis and its effect on India in particular. “Historically, pandemics have forced humans to break with the past and imagine their world anew,” she writes. “This one is no different. It is a portal, a gateway between one world and the next.”

Get in touch

How is your workplace dealing with the coronavirus? Please tell us what your company is doing by emailing covid@ft.com. We may publish your contribution in an upcoming newsletter. Thanks



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