by Francesco Canepa and Valentina Za
FRANKFURT, Nov 9 (Reuters) – European Central Bank (ECB) Banking Supervision has called on eurozone banks to preserve capital amid a deteriorating economic outlook, several sources familiar with the matter said.
Banks such as UniCredit and Société Générale posted outstanding quarterly earnings, thanks to the rapid rise in interest rates and trading activity, and announced cash distributions to shareholders.
But with the specter of an economic downturn in the eurozone and urges from supervisors to be cautious, banks may find it harder to reward their shareholders with the same generosity next year as their capital buffers may be weaker. than expected, three sources said.
The ECB believes that some banks rely on overly optimistic economic scenarios, based on models that fail to fully capture the damage caused by record inflation, the sources say.
An ECB spokesperson declined to comment.
According to Morgan Stanley, euro zone banks are expected to pay € 40 billion in dividends in 2022, plus over € 60 billion spent on share buybacks between this year and 2023 – a huge return compared to recent trends.
But the prospects for distributions are already starting to dim.
Italian bank Intesa Sanpaolo postponed half of its € 3.4 billion share buyback program approved by the ECB in June at least early next year, preferring to wait and see the extent of Italy’s economic downturn.
“It’s not a good idea to put in capital in a recession,” CEO Carlo Messina said last week.
The Swedish central bank on Wednesday recommended that the country’s banks “be restrictive when it comes to paying large dividends and buying back shares.”
The ECB has given the green light this year to all acquisitions subject to its approval, including those of UniCredit, Société Générale and ING, one of the sources said, in decisions welcomed with relief by shareholders following the limitation imposed at the height of the pandemic. by covid19.
But some bankers find the ECB’s approval process too cumbersome, industry sources say, adding to their frustration with the ECB’s decision to shelve subsidized loans and what they see as interference in operational decisions.
Andrea Enria, head of banking supervision at the central bank, on Tuesday called on banks to take recession risk into account when planning future distributions.
“There is a disturbing dissonance between the positive outlook and the unique combination of risks we face today,” he said at a seminar on the banking sector in Germany.
Comforted by much greater capital buffers than at the time of the financial crisis and the expected increase in revenues thanks to the rise in interest rates, several banks are holding on.
After determining the fixed remuneration of shareholders under a plan until 2024, despite the ECB’s preference for a payout ratio, UniCredit boss Andrea Orcel has committed to achieving the same payout ratio by 2023. distribution target compared to this year, 3.75 billion euros.
James von Moltke, chief financial officer of Deutsche Bank, said Wednesday that the ECB and other institutions should rather “support the banks to help the economy”.
But some analysts believe that economic reality, regardless of pressure from the authorities, could very well change bankers’ minds.
“With the economy going into recession, the days of massive bank payments are over,” said Marco Troiano, CEO of Scope Ratings.
(French version Laetitia Volga, said by Jean-Stphane Brosse)