Dhe European banking supervisors are tightening their claims against the banks in the corona crisis. After the regulator of the European Central Bank (ECB) had called on the institutes to waive dividends and share buybacks until October, the EU banking regulator Eba has now also targeted the success premiums, which it believes can be deferred or paid out in shares. ECB chief banking supervisor Andrea Enria said in an interview with Bloomberg TV that institutions should exercise caution when offering bonuses to employees.
This also applies to Deutsche Bank, which, after losing billions of euros, will not pay a dividend for 2019, but has promised its employees 1.5 billion euros in bonuses. The institute will immediately pay out 1 billion euros of this, while the rest will flow to employees over the years. The new expectations of the supervisors at Deutsche Bank are now intensifying the discussion of how the variable performance compensation for management board and executives should be dealt with in the current year.
Waive BBVA and Unicredit
A waiver of bonuses should also be discussed. The institute is aware of the overall economic and political situation and, of course, is speaking internally on the subject, said Wednesday from the bank’s environment. It is about more than just cuts in bonus payments. A decision had not yet been made. Deutsche Bank did not want to comment on this. Other major banks have already reacted: The executives of the Spanish BBVA and the Italian Unicredit are waiving the bonuses for the current year.
Nevertheless, the supervisors of the ECB and the Eba have not ordered a general bonus stop. The decision not to pay a dividend, which many banks have already announced for 2019, has so far only been a recommendation. But the banks have to deal with the supervisory teams from the ECB and national authorities, in Germany the Bundesbank and the financial supervisory authority Bafin, if they want to distribute profits. And that should be difficult for them, because Enria made it clear in the television interview that the ECB supervisors can force the banks to postpone dividend payments if the institutions do not voluntarily do so in the course of the corona crisis to strengthen capital. “If the banks choose not to follow the recommendations, we will decide whether we take any other action; we can also take legally binding measures if necessary, ”said Enria. “We want to make a firm determination at banks to get every euro of capital that could be useful for lending to the economy.”
To this end, the banks have also been granted relief with regard to the capital backing of loans and more scope in dealing with bad debts. The ECB chief overseer is more concerned about the planned dividend payments than the performance bonuses. The call to stop the distributions was important, said Enria Bloomberg TV. Because the money houses would have wanted to distribute around 30 billion euros in profits. Bonuses are less of an issue. This is about a lower sum, and a large part of it was paid in the form of shares and other financial instruments.
Banks have a central role in coping with the corona crisis, said Raimund Röseler, the bank’s top supervisor. They could only do this if they were well capitalized. In the opinion of Bafin, the institutes should not use the new regulatory freedom to pay dividends. Rather, the available capital should be left in the banking sector in order to make the institutions more crisis-proof and to support the granting of loans. The Bafin now also expects all institutions under its supervision not to distribute profits. This affects savings banks as well as Volksbanken and Raiffeisenbanken, while the ECB is responsible for the 117 largest institutions in the euro area. In Germany, these include Deutsche Bank, Commerzbank, DZ Bank and Landesbanken.
Commerzbank follows the ECB. Aareal Bank and Pfandbriefbank are still examining. But the pressure is increasing because other European banks have already declared that they will not pay dividends. The pharmacists ‘and doctors’ bank, which is also supervised by the ECB, announced on Wednesday that it would halve its 2019 dividend, but still wanted to pay.