Europe bank payouts capped as capital bar keeps rising

Thu Nov 21, 2013 1:21pm EST
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By Steve Slater

LONDON (Reuters) - Shareholders' expectations for bank dividends have declined after lenders ramped up capital levels in the third quarter, spooked by a mega fine against JP Morgan (JPM.N: Quote) and spiraling regulatory demands.

Major banks including Credit Suisse CSGN.VX, UBS UBSN.VX and Deutsche Bank (DBKGn.DE: Quote) either specifically set aside more for litigation costs or rebuilt capital at one of the fastest rates since the financial crisis in the last quarter, cutting the payout pool for yield-hungry investors.

Banks are keen to lift their dividends after cuts following the financial crisis, but a big jump in payouts may now be delayed until 2015 from a previously-hoped-for 2014.

"Banks have to maintain or strengthen their capital ratios. They want to pay dividends to shareholders and if they have to pay fines, something has to give," Alain Stangroome, head of group capital planning at HSBC, said at the Thomson Reuters IFR conference on bank capital on Thursday.

The prospect of a record $13 billion deal between JP Morgan and U.S. authorities to settle investigations into the sale of mortgage debt encouraged European rivals to set aside more cash to cover misconduct risk. The settlement, the largest levied on a single firm, was confirmed this week.

"The (conduct and litigation cost) numbers have lost the capacity to shock and we've seen an arms race in terms of the numbers involved," said John-Paul Crutchley, analyst at UBS.

As well as larger fines for misconduct, regulators in Switzerland, Britain, Sweden and elsewhere are ratcheting up capital requirements to avert a replay of the financial crisis.

The regulatory squeeze saw banks get their balance sheets into better shape in the July-September period and that trend is expected to continue in the fourth quarter.   Continued...

Christmas decoration is placed around the logo of Swiss bank Credit Suisse beside the entrance to its headquarters in Zurich November 21, 2013. REUTERS/Arnd Wiegmann