European regulators lift ban on bank dividends

Bloomberg

European regulators lifted their de facto ban on bank dividends while imposing strict limits on payout levels to help lenders maintain financial strength during the pandemic.
The European Central Bank (ECB) said that the continent’s banks should keep dividends and share repurchases to less than 15% of profit for 2019 and 2020, or 0.2% of their key capital ratio, whichever is lower, according to a statement. That’s a more conservative payout level than the Bank of England announced last week.
European lenders’ shares have lagged behind the broader market this year, after they repeatedly warned that being unable to return cash to investors risks cutting them off from capital markets. Despite optimism that the end of the pandemic is in sight, some regulators remain concerned that allowing a full return to payouts may leave banks without the financial reserves to bear losses without taxpayer bailouts.
“It’s an important opening,” Andrea Enria, head of the ECB’s supervisory arm, said in a Bloomberg Television interview. “We are moving slowly back to normal, although we are not in normality yet.”
While the economy’s path is clearer, there’s “not a lot of visibility on the asset quality trajectory” at banks, Enria said. Financial institutions are also benefiting from government, central bank and regulatory support, which justifies the ECB’s call for prudence, he said.