Overseas-owned Irish banks hold off on dividends

The European Central Bank’s (ECB) move last week to urge banks to hold off paying dividends, as Covid-19 rips through economies, has upset plans of overseas-owned Irish lenders to make multimillion-euro payments to their parents.

KBC Bank Ireland, whose board had been planning to decide in June on a dividend payment to the lender's Belgian parent KBC Group based on last year's profits, is now "very unlikely" to elect to make any such payment this year, according to a company spokeswoman.

The bank had paid €410 million in dividends to KBC Group in recent years, equivalent to almost a third of the €1.4 billion parental rescue it received during the financial crisis.

Dublin-based Depfa Bank, which almost collapsed in 2008 as it ran into funding problems, is understood to have held off on paying on a scheduled €150 million dividend on Monday to its owner, German state-owned bad bank FMS Wertmanagement (FMS-WM).

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It is expected to make a final decision within days on whether to complete the payment, which was set to be Depfa’s first dividend since the start of the financial crisis.

FMS-WM, which inherited Depfa Bank in late 2014 after the German government pulled a planned sale of the Dublin-based former public sector lender, set about putting the business back on the market late last year. If a deal does not materialise, the bank will continue to be wound down.

Abandon plans

AIB and Bank of Ireland and a host of euro-zone lenders have moved this week to abandon dividend plans after the ECB's banking supervision moved late on Friday to recommend that banks hold back on paying out money to shareholders or pursuing share buyback programmes.

The ECB said that capital should be conserved to support lending to households and businesses during the coronavirus pandemic. The sector is also bracing itself for a surge in bad loans as the global economy contracts.

Ulster Bank has paid €3.5 billion back to its parent Royal Bank of Scotland after receiving a £15 billion (€17.1 billion) bailout during the financial crisis from the UK group. That includes €500 million transferred just before the end of the year. A spokeswoman for Ulster Bank declined to comment on whether the bank plans to hand over additional dividends this year.

Analysts at Wall Street bank Morgan Stanley said on Thursday that while corporate dividends tend to drop at a slower rate than earnings during recessions, the current slowdown may lead to the first time when dividends per share fall more sharply than earnings per share, as companies seek save cash.

Banks, energy groups, pharmaceutical companies and insurers are among the biggest dividend payers in Europe, they noted.