UK taxpayers are to forfeit more than £600m from the cancellation of bank dividends as regulators instruct Britain’s biggest lenders to conserve capital amid the coronavirus crisis.
Royal Bank of Scotland’s move to stop a £968m full-year dividend payment for 2019, which was due to be made in the coming weeks, will leave the Treasury £600m poorer.
The government’s 62% stake in RBS means it would have received the sum if the payout had gone ahead.
It will also forego taxes associated with the payment of the chunk of the £7.5bn that was due to be handed to UK taxpayers.
Banking sources expect the Prudential Regulation Authority (PRA), the banking watchdog, to announce on Tuesday evening or Wednesday morning that Barclays, HSBC, Lloyds Banking Group and RBS will no longer pay the dividends announced alongside their full-year results.
Excluding HSBC, which is by far the largest dividend-payer with a $4.2bn cheque but which is less UK-focused than its peers, the move will preserve roughly £4bn of capital – which could translate into £40bn of lending into the UK economy as the COVID-19 pandemic deepens.
The Financial Times reported earlier that there was a growing expectation of the dividend cancellation.
One source suggested that Sam Woods, the PRA chief executive, told the banks on Monday that a final decision had yet to be reached by the regulator.
“There’s no question that we’re on standby for it,” said one bank executive.
“Given all the capital the UK banks hold now, this is largely a symbolic gesture.”
Barclays, which is due to be the first to pay its dividend on Friday, was understood to be convening a call between directors to discuss the PRA’s impending decision.
Although modest in the context of taxpayers’ £45.5bn bill for rescuing RBS, the £600m dividend would have been only the third annual payout received by the government since its 2008 bailout.
The cancellation of the 2019 dividends will be painful for shareholders in the banks, a proportion of whom are retail investors who have suffered a decade of meagre returns from UK lenders.
None of the banks would comment, while the PRA could not be reached for comment.