New York (AFP)
In 2008, the major American banks had been saved from bankruptcy with taxpayer money from a crisis caused by their mistakes. Twelve years later, reorganized, they do not want to cut corners on their dividends in the midst of a pandemic despite political pressure.
American banks have until Monday to tell the US Central Bank, the Fed, how they intend to allocate their cash (CCAR).
They should announce, according to banking sources, that they plan to pay the dividends, pledge of good financial health and means of attracting investors.
Banks' stock prices on Wall Street jumped for this reason: JPMorgan Chase by more than 5%, Goldman Sachs by 6%, and Morgan Stanley by almost 8%.
"Our dividend makes sense," Michael Corbat, chief executive of Citigroup, the fourth-largest US bank in terms of assets, said on CNBC on Wednesday. "We will continue to pay it," he added, summing up a feeling widely spread among Wall Street bankers, who fear that a suspension of dividends will further depress their already dropping stocks.
This position is unpopular, especially among elected Democrats, who call on banks to help businesses, in lack of cash, to survive the coronavirus pandemic.
Especially since the economic picture is disastrous: nearly 10 million Americans registered unemployed in the last two weeks of March, thousands of restaurants, local shops and chain stores have closed, affected by the measures taken to stem the spread of Covid-19, a disease caused by the new coronavirus.
In Europe, the European Central Bank (ECB), incited companies in the euro zone not to remunerate their shareholders for the years 2019 and 2020.
The line of defense for American banks is that their financial situation is much stronger than that of their European rivals and that they have healthier balance sheets to both finance the economy and continue to pamper their shareholders.
"American banks depreciated their (toxic) assets and suffered losses between 2008 and 2012. They have since rebuilt their capital and liquidity," said Marty Mosby, analyst at Vining Sparks.
This is not the case, according to him, on the other side of the Atlantic where European banks "have spread their losses over time".
- Suspended share buybacks -
Gregori Volokhine at Meeschaert points out that the return on equity (ROE) shows that for each dollar spent by a European firm, it earned only 0.50 dollar, against a gain of 1.50 dollar for an American establishment.
American banks have also accumulated large profits in recent years. In 2019, JPMorgan Chase, the leading American bank in terms of assets, alone made a net profit of $ 36.4 billion.
"They can afford to pay the dividends," says Gregori Volokhine. "It is not up to the banks to bail out the companies that are going to go bankrupt. If they did, it would not be doing the system any good," he warns.
In his annual letter, published Monday, Jamie Dimon, the CEO of JPMorgan Chase, indicates that the establishment would suspend its dividend only in the event of a severe recession, marked by a jump in unemployment to 14% at the end of the year.
Failing to suspend the dividends, Richard Bove, expert at Odeon Capital, believes that it is more than likely that the big American banks will reduce them.
"A significant rise in credit losses will raise questions about the level of their capital and force them to reduce their dividends", argues Mr. Bove, who argues that the second half will be marked by default by many consumers on their mortgages, their consumer loans and auto loans among others.
The banks nevertheless agreed not to buy back their own shares until June, the other way to compensate shareholders.
Share buyback programs have in the past represented around two-thirds of the money paid back to their shareholders.
Last year, JPMorgan Chase, Bank of America Merrill Lynch, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley, the six flagships of Wall Street, received the green light from the Fed to pay cumulative dividends of about 35 billion of dollars and buy back 110 billion of their own shares between July 2019 and July 2020.
© 2020 AFP