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European banks need mergers not dividends

Rushing back to capital distributions won’t solve the sector’s deeper crisis.


It’s ironic that Banco Santander is leading the charge back to cash dividends, given it has one of the lowest capital ratios in European banking.

Its millions of Spanish retail investors largely explain Santander’s eagerness to push for shareholder approval now. It is aiming for a 50% cash dividend payout over its 2020 earnings, paid early next year. Many of these investors rely on such dividends for their income.

However, it also shows how hard banks are lobbying ahead of a European Central Bank (ECB) decision in December on whether to lift the dividend ban.

The ECB’s chief supervisor Andrea Enria in effect imposed the ban in March. Now European banks’ capital ratios are running at an average of about 350 basis points over their regulatory minimums, or about €300 billion, according to KBW. That’s half the sector’s market capitalization. Even Santander has about €16 billion in excess capital.

The ECB’s chief supervisor Andrea Enria
Source: ECB

Perhaps Santander’s rush back to dividends also suggests it is not so eager for big acquisition opportunities brought about by the coronavirus – whether in Spain, where Banco Sabadell is the next big merger candidate, or in Britain, where ailing Sabadell-owned challenger bank TSB could otherwise help Santander bulk up its own subscale UK operation.

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