Yahoo Finance Societe Generale Drops 2019 Dividend Amid Coronavirus Crisis
Societe Generale SCGLY has decided to suspend dividend distribution for fiscal 2019 and drop fiscal 2020 targets in an effort to create a buffer against expected losses from the economic slowdown, driven by the coronavirus pandemic.
In February, the company provided 2020 guidance.
Net income was expected to increase year over year. Moreover, the company had projected cost of risk of 30-35 basis points. It had expected improvement in its return on tangible equity (ROTE) in fiscal 2020, with CET1 ratio of above 12%. Tangible net asset value per share and earnings per share were expected to increase on a year-over-year basis.
However, in the second half of this year, Societe Generale’s board will propose guidelines on shareholder return that could consist in the payment of an interim dividend on 2020 results or an exceptional dividend in the form of a distribution of reserves.
The decision to suspend dividends was made after the board of directors of the company analyzed the implications of the guidance provided by the European Central Bank (“ECB”) for banks to follow for the duration of the coronavirus crisis.
Last week, the ECB asked banks to suspend shareholder distributions for the 2019 financial year as well as for fiscal 2020 at least until October and use the additional capital to support the economy that is hurt by the coronavirus outbreak.
Paying heed to ECB’s demand, several Euro-zone banks decided to suspend buybacks and halt dividend payments this year. Nonetheless, UBS Group AG UBS and Credit Suisse CS plan to move ahead with 2019 dividend payments.
In fact, following the Euro-zone banks, major U.K. banks have decided to suspend all types of shareholder distributions. In a coordinated move, Barclays BCS, Royal Bank of Scotland, HSBC Holdings, Standard Chartered and Lloyds Banking Group announced the suspension of their outstanding 2019 dividend payments.
The move came after the Prudential Regulatory Authority (“PRA”) wrote to banks asking to cancel payments to shareholders.
Now, with the U.K. and Euro-zone banks suspending all shareholder distributions this year, the U.S. banks are likely to face all the more pressure to follow suit.
Many banks still face the stigma associated with the 2008 crisis as they were the primary reason for it. Therefore, in order to show their willingness to go to any extent for supporting the economy, banks may cut dividends for appearance’s sake.
However, this is bad news for investors as many invest in stocks just for steady dividend income. Thus, this could be another major blow for banks, which are already facing bearish investor sentiments, owing to the expected fall out of economic slowdown.
Shares of Societe Generale have lost 50.5% over the past year compared with a 42.9% decline of the industry.
Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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