No bank dividends for investors in next recession

Christopher Joye

Coolabah Capital

From my AFR column today: "I don't think Australian bank shareholders are cognisant of the risk that if equity capital ratios fall modestly, there are new automatic restrictions imposed by the regulator on the distribution of earnings that mean dividends may not be paid. In fact, it is likely that some banks will stop paying dividends altogether in the next recession as they rebuild capital eroded by loan losses. This column first publicly canvassed these hazards in August in the context of additional tier one capital (AT1) securities (or "hybrids"). The chairman of the Australian Prudential Regulation Authority, Wayne Byres, has confirmed our analysis that APRA will garnish 40% of a major bank's earnings from being used for dividends, AT1 hybrid coupons and/or staff bonuses if their common equity tier one (CET1) capital ratio falls below 8%. If equity declines to less than 7.125% (6.25%), APRA will restrict 60% (80%) of total earnings. A formal stop on all payments to equity and hybrids kicks in when the CET1 ratio hits 5.375%." Read free: (VIEW LINK)

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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