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Big U.S. banks face pressure to announce dividend cuts

By David Henry

By David Henry

NEW YORK, March 24 (Reuters) - Big U.S. banks may cut dividends for political rather than financial reasons as a growing chorus of lawmakers, former regulators and consumer advocates say it is inappropriate for them to tap emergency funding programs while paying out cash to shareholders.

The eight biggest U.S. lenders, led by JPMorgan Chase & Co , already halted stock repurchases earlier this month. They characterized it as a patriotic move that would allow them to put more capital toward lending to individuals and businesses during the coronavirus outbreak, which has clobbered stock prices and led the Federal Reserve to pour trillions of dollars into the financial system.

But none of the banks have cut dividends, with JPMorgan saying it had no plans to do so.

"That is not enough," said Sheila Bair, former chair of the Federal Deposit Insurance Corp, in an interview on Tuesday. "They should be conserving all available capital. We are in a severe health crisis that is turning into an economic crisis."

Those eight banks collectively pay about $9 billion in quarterly dividends on common stock, according to Refinitiv data.

Big banks faced similar criticism last week from Democratic lawmakers and groups including the Systemic Risk Council, a global group of influential ex-regulators that counts Bair as a member, and Better Markets, which advocates for Wall Street reforms.

U.S. Representative Maxine Waters, who chairs the House Financial Services Committee, proposed a temporary ban on corporate stock buybacks and dividends.

Cutting dividends at this point would not be a sign that the banks are in financial straits, but rather that they are sensitive to political concerns, analysts said.

Although bank balance sheets are in much better shape than other companies whose dividends are at risk - such as airlines, hotels, automakers and retailers - the industry still faces a stigma from the last U.S. crisis in 2008.

The big-bank bailouts of that era led to the Occupy Wall Street movement and advocacy work that continues today. On Monday, the hashtag #NotDying4WallStreet sprouted up on Twitter, in response to politicians, including Republican President Donald Trump, who have said major cities that have shut down due to coronavirus risks should re-open to help the economy.

The dividend pressure has ramped up even more in Europe, where industrial companies have begun cutting payments and Banco Santander SA said it would not issue its next semi-annual dividend despite being able to do so.


Even though U.S. banks are also flush enough to keep paying dividends at current levels, they may decide to cut them for appearance's sake, some analysts said.

"They might trim the dividends back for optics," said Viola Risk Advisors analyst David Hendler. "But in terms of capital, the U.S. banks are the strongest banks in the world."

Slashing dividends is a difficult decision for companies because the payouts are seen as evidence of good financial health and encourage loyalty from investors who buy shares or indexes expecting that income.

"Most companies will view their dividends as sacrosanct," said Portales Partners analyst Charles Peabody, who expects most big banks to maintain theirs.

But Bair noted that, in addition to Fed programs that have poured trillions of dollars into bond markets in recent weeks, banks have also benefited from expanded deposit insurance and regulatory easing and that their shareholders have gotten generous payouts the past few years.

"Now is not the time to be releasing precious capital," she said.

Banks that joined JPMorgan in suspending share buybacks through June were Bank of America Corp, Citigroup Inc , Wells Fargo & Co, Goldman Sachs Group Inc, Morgan Stanley, Bank of New York Mellon Corp, and State Street Corp.

The decision will save them about $40 billion of capital, which could support about $400 billion of loans, analysts said. Bank dividends usually use about one-third as much capital as buybacks.

Financial companies supplied nearly 15% of dividend payments from the S&P 500 stock index last year, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

"Dividends are typically the last thing to go, but we have a liquidity issue now," Silverblatt said. "It is an option they will have to evaluate." (Reporting by David Henry in New York Additional reporting by Michelle Price and Pete Schroeder in Washington Editing by Lauren Tara LaCapra and Nick Zieminski)