The casual manner in which HM Treasury is briefing away the matter of dividend restrictions on British banks subscribing to HM Bailout is truly breathtaking.
You could read it in plenty of places on Thursday:
Apparently, according to well-placed sources, a sensible interpretation of the complex documentation drawn up for the banks’ capital-raising would say the following: 1) there is a strict ban on dividend payments for a year; 2) thereafter there would be discretion for the Treasury to permit dividend payments to start again at Royal Bank of Scotland and Lloyds (as enlarged by the planned takeover of HBOS), irrespective of whether all the prefs had been repaid.
FT:
Mr Darling’s team said yesterday the bankers had failed to understand the terms of the deal or to explain it properly to investors, hence the Treasury’s need to “clarify” it. The Treasury denied any U-turn.
Officials disclosed yesterday, however, that the ban was only irrevocably in force for a year. It could then be lifted if the banks paid back large sums to the Treasury, and if such a move was “in the interests of the taxpayer”.
Uh? The message here seems to be that UBS and Merrill Lynch and Citigroup and all the lawyers involved and the bailout banks themselves, and also the FSA which supervised the release of all related public announcements, all misunderstood the basic details of the plan. Hence public statements on the day like this one from Lloyds TSB:
Under the terms of the preference shares, the enlarged Group will be precluded from paying a cash dividend on its ordinary shares whilst any of the preference shares remain outstanding.
This beggars belief. The Treasury officials spinning this rubbish are employing a blend of arrogance and ignorance that is simply out of step with the notion of modern, open and honest government.
For what it’s worth, we think the “real” story was buried in the Guardian – a disclosure that suggests this particular row has some way to go.
The Guardian has learned that the European commission forced the government to ban the dividend pay-outs on the three banks taking part in the bail-out as the price for winning its approval under EU competition rules. It is understood that this was one of up to 10 conditions imposed by Brussels on the government as it sought clearance for its £500bn capital injection, debt guarantee and liquidity funding scheme last weekend.
Neelie Kroes, EU competition commissioner, and her senior officials insisted upon the dividend ban as long as the government held preference shares in the affected banks. They said this would act as an incentive for the banks to repay the capital as soon as possible.
Initially, it is understood, the government suggested that penal interest rates would act as an adequate incentive, but Brussels toughened this condition up along with other UK proposals during the negotiations which began in the middle of last week.