The ECB building in Frankfurt
by Francesco Canepa and Valentina Za
FRANKFURT (Reuters) – European Central Bank (ECB) banking supervision has called on eurozone banks to preserve their capital in the face of deteriorating economic outlook, several sources familiar with the matter say.
Banks such as UniCredit and Société Générale posted outstanding quarterly earnings, thanks to rapid increases in interest rates and trading activity, and announced cash distributions to shareholders.
But with the specter of an economic downturn in the euro zone and urges from supervisors to be cautious, banks may find it harder to reward their shareholders generously next year as their capital buffers may be below estimates, they said. stated three sources.
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, Eurozone 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 magnitude of the economic downturn in Italy.
“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 to all acquisitions subject to its approval this year, including those of UniCredit, Société Générale and ING, one of the sources said, decisions welcomed with relief by shareholders following the limitation imposed at the height of COVID- 19 pandemic.
But some bankers find the ECB’s validation process too cumbersome, industry sources say, increasing their frustration with the ECB’s decision to shelve subsidized loans and what they perceive 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 currently face,” he said in an interview on the banking sector in Germany.
Comforted by much larger capital buffers than at the time of the financial crisis and the expected increase in revenues thanks to rising interest rates, several banks are holding on.
Having determined the fixed remuneration for 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 distribution target as this year. equal to 3.75 billion euros.
James von Moltke, chief financial officer of Deutsche Bank, said Wednesday that the ECB and other institutions should instead “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, edited by Jean-Stéphane Brosse)