Banking Dividend Freeze

[supremetwo]

With HSBC, I have a very long standing holding in certificates. No need to worry about tax on dividends there for the next tax year! I have more in an ISA which I think I will sell tomorrow and buy 3i infrastructure. The yield is under 4% and the share price is more or less at NAV as far as I think anyone can tell these days so apologies, that is not really a HYP share. I will probably keep the certificated parcel because I would expect the share price to rebound before too long. They are not paying a dividend so that adds to the value in the business and hopefully they will not be told to give away loans to help the distressed. I will need to think hard about whether they care a long term hold or not, but they have suddenly changed from being an income share to being a value share I suppose.

I think the invasion of non HYPers is very simple to explain. It is because we are all becoming non HYPers in the current investment climate.
Who could possibly identify a suitable share following HYP principles at the moment?

Dod

There is now even more overseas HSBC shareholder discontent increasing the possibility that head office moves back to Hong Kong.
Presume that will mean no longer having to comply with Bank of England dividend edicts.

[Dod101]

The domicile of HSBC is now getting a mention on a number of threads but I would be hard pressed to see them moving back to HK into the clutches of China but you never know. Moving say to Singapore would be 'safer' but would probably upset China and they cannot afford that.

Dod

[Dod101]

I think I follow this argument and dealtn's seems more plausible to me but it depends on an efficient market so that the effect of the accumulated earnings and the effect of the share sales are all reflected in the price at all times. Life and share prices are not like that unfortunately. I am just as likely to be selling my number of shares to raise the dividend equivalent at the 'wrong' time than the 'right' so like most Finance Theories they work on paper but not necessarily in practice.

If I am forced to sell some HSBC shares to raise the dividend equivalent times will really be bad.

For instance today with HSBC quoted at around £4 it would plainly be silly to sell. What has changed in the business today compared to last Friday evening when they were quoted at £4.60, or for that matter the previous one when they were quoted at £5? In theory their prospects are better now than then but look at the share price.

Dod

[88V8]

Selling the golden goose... short-termist twaddle.

V8

[scrumpyjack]

The net asset value argument doesn't seem to work for bank shares. Barclays tangible NAV per share is about 260p I think. When it was announced that the dividend which was already XD was not going to be paid, the share price fell dramatically even though it was 'worth' 6p more due to the cancelling of the xd div. Shareholders clearly think a bird in the hand (cash paid out) is worth 3 in the bush (retained cash).

Of course banks are hugely geared so problems with the economy will result in a large increase in bad debts which all fall on shareholders funds. I suppose the market is very jittery about that, though the BoE seemed relaxed about bank solvency before jumping on the ECB dividend banning bandwagon.

I would have thought that the huge amount of cash HMG is splurging on all and sundry will greatly reduce the bank bad debt problem as fewer businesses collapse.

Still time will tell and banks are certainly a risky business in times of economic uncertainty. Personally I very much doubt that the UK major banks will collapse, which is what the current share prices seem to imply.

[Dod101]

I do not think any of the major UK are in the slightest danger of collapse whether or not they continued to pay the dividends promised but I thought the argument was that banks should retain the funds so that they could lend more to the shattered economy and be better able to withstand the fact that defaults are likely to rise.

What though is the point of beefing up the reserves and holding all those stress tests if not for this sort of situation. And as far as I know most of them passed with flying colours. RBS and Barclays were I think the weakest.

Dod

[idpickering]

Selling the golden goose... short-termist twaddle.

V8

Bravo V8. Well said. There’s to much twaddle hereabouts recently.

Ian.

[kempiejon]

Selling the golden goose... short-termist twaddle.

V8

Bravo v8. Well said.

Ian.

Trouble is some of the geese have stopped laying, not for the first time, they might just be egg-bound and it'll sort out but they might be better off in the pot.

[Wizard]

Selling the golden goose... short-termist twaddle.

V8

Bravo V8. Well said. There’s to much twaddle hereabouts recently.

Ian.

My bold.

Such as? I think most of the discussion has in the last week or so has been extremely interesting to those that want to think about how to manage their investments. Maybe some of it should be on the Strategy board, but hard to split threads apart, so so can understand why the mods are not trying to do that.

[Dod101]

I took the 'short termist' twaddle comment to be a reference to the Finance Theory being argued over earlier in the thread. Seemed to me to be the only bit that fitted that comment. The rest I agree is helpful and useful.

For those who can afford to leave their banking shares alone, the dividend freeze may turn out to be helpful and make the banks even stronger.

What I object to is that all the banks have been tarred with the same brush but maybe it would be too difficult to do anything else.

Dod

[Bubblesofearth]

Possible the banks are preparing for more pressure from govt for a bunch of giveaways , being cynical remember the ppi gravy train has ended . On the basis of the penalty terms in NWBD prospectus bought some more .

https://www.bbc.co.uk/news/business-52132329

[Wizard]

I took the 'short termist' twaddle comment to be a reference to the Finance Theory being argued over earlier in the thread. Seemed to me to be the only bit that fitted that comment. The rest I agree is helpful and useful.

For those who can afford to leave their banking shares alone, the dividend freeze may turn out to be helpful and make the banks even stronger.

What I object to is that all the banks have been tarred with the same brush but maybe it would be too difficult to do anything else.

Dod

Sounded like it was intended to be a broader comment, otherwise why not identify that more specifically. But no doubt I an will be along to agree with your interpretation soon enough

[Arborbridge]

I do not think any of the major UK are in the slightest danger of collapse whether or not they continued to pay the dividends promised but I thought the argument was that banks should retain the funds so that they could lend more to the shattered economy and be better able to withstand the fact that defaults are likely to rise.

What though is the point of beefing up the reserves and holding all those stress tests if not for this sort of situation. And as far as I know most of them passed with flying colours. RBS and Barclays were I think the weakest.

Dod

That's my feeling too, since they are said to be stronger than ever. The cynic in me thinks (and has already written somewhere) that I feel it is not going to make any difference getting help to companies that need it. Thousands are already being turned down for loans: others find the terms too draconian.
There is plenty in the banking system to pay dividends (which helps the economy via the multiplier as we spend the money) and help to industry - particularly at the small end of sole traders or small companies.

It smacks of regulators doing something because they feels it is expected of them: virtue signalling.

Last crisis, they got blamed for being asleep at the wheel and in trying not to be found wanting this time, they are actually causing more stress than they need to- at least amongst the minnows like us.

Arb.


Arb.

[Arborbridge]

I took the 'short termist' twaddle comment to be a reference to the Finance Theory being argued over earlier in the thread. Seemed to me to be the only bit that fitted that comment. The rest I agree is helpful and useful.

For those who can afford to leave their banking shares alone, the dividend freeze may turn out to be helpful and make the banks even stronger.

What I object to is that all the banks have been tarred with the same brush but maybe it would be too difficult to do anything else.

Dod

Sounded like it was intended to be a broader comment, otherwise why not identify that more specifically. But no doubt I an will be along to agree with your interpretation soon enough

The trouble with broader comments is that everyone stands around wondering what the complainant is really driving at.
It used to happen in a company I worked for: the boss would make a general criticism and everyone would feel guilty for no particular reason!

[Wasron]

It smacks of regulators doing something because they feels it is expected of them: virtue signalling.

Last crisis, they got blamed for being asleep at the wheel and in trying not to be found wanting this time, they are actually causing more stress than they need to- at least amongst the minnows like us.

Arb.

That’s my view too.

The banks passed the stress tests, so either the PRA didn’t make the tests tough enough or they want the banks to have more cash available so that the government can extract it. There was more bank bashing by the government on the news last night, maybe just to deflect their ability to get the testing of NHS staff ramped up, or to soften the public up to imposing a higher banking levy to help pay for the government spending promises.

If it’s the latter then those cancelled dividends will be forcibly redirected and never end up as retained earnings.

Wasron

[88V8]

....'short termist' twaddle .....

Sounded like it was intended to be a broader comment, otherwise why not identify that more specifically.

The notion of selling a reliable payer like HSBC while the price is down, because, what, because they're told to stop paying the divi for a few months... and then buy the shares back next year at a much higher price?
Faugh!

On the other hand there is the argument that one could then jump into a frying pan I means share, that is still paying and its price will also move up so then one could later buy back into HSBC with no loss of capital. Perhaps.

Well, I've never held HSBC but this looks like a good opportunity to buy.

V8

[dspp]

The banks are (or will be) lending fairly significant sums to companies. Many of those companies will fail in due course, prior to repayment.

The taxpayer will pay out 80% to the banks. The banks will try to recover the other 20% by being the first (most senior) secured creditor.

For loans under £250k they are now expected to be unsecured against directors personal guarantees (i.e. houses, etc). That means that only the company assets will be available for recovery.

It is a fairly reasonable expectation that, in the fullness of time, for quite a few of those companies the banks will not make full recovery as the assets will be found to be not what was hoped for.

This means the banks will likely have a hefty unrecovered loss to deal with.

Ordinarily (in the new normal of "too-big-to-fail") the banks would then turn to the taxpayer for a bail-out. The political & regulatory authorities are wagging their fingers in advance and saying, "don't even think about it".

So it is that future loss provision that the banks are now preparing, which is why they are cancelling their dividends now. If in due course they will have been over-cautious then there will in due course be a bumper dividend.

If you think that the banks are being overcautious (and overly politically sensitive) then go and buy extra bank shares now. Or if you then the reverse then get out now. I have no personal opinion on banks, but I do know what small stressed UK firms look like that might think this is a good opportunity to get a loan out of the bank.

regards, dspp

[tjh290633]

Moderator Message:
I have moved the posts about selling shares to replace dividends to a separate thread, as I had become a sideshow.

TJH

[monabri]

Moderator Message:
I have moved the posts about selling shares to replace dividends to a separate thread, as I had become a sideshow.

TJH

WE would never say that about YOU!

[Lootman]

Incidentally, nothing personal and this may not apply to you but why has the board been invaded by several non-HYPers? I've nothing against non-HYPers, reputedly they are human too, but why in the midst of the current problems have they decided to give us the non-benefit of their non-HYPing views which by definition are irrelevant here?

You assume there that everyone is either a HYPer or not, and that people either believe in it 100% or 0%.

In reality most people buy into some of its principles and not others. So some people tinker and some do not. Some equal weight and some do not. Some venture outside UK large-caps and some do not. Some authomatically sell dividend cutters and some do not. And so on.

Both on TMF and TLF the methodology has been refined and developed by various contributors and is better for it. Often such progress is only achieved by people pointing out what doesn't work. If that is "criticism" then it is constructive and not something to be discouraged, let alone suppressed.

Criticism is essential for evolution.