Shareholder payouts at risk as ECB tells banks to hold capital - sources


Supervisors say banks too optimistic


Risk models struggle to capture inflation surge


ECB approved large payouts this year

By Francesco Canepa and Valentina Za

FRANKFURT, Nov 9 (Reuters) - Investors hoping for fat payouts from euro zone banks may be disappointed as supervisors are urging them to preserve capital in the face of a souring economic outlook, sources told Reuters.

Banks including UniCredit CRDI.MI and Societe Generale SOGN.PA have been reporting bumper profits and announcing dividends and share buybacks, boosted by a sharp increase in interest rates and a trading boom after more than a decade of mostly meagre returns.

But with the euro zone now heading for recession and supervisors urging caution, bankers will likely find it harder to reward shareholders as generously next year, as their capital buffers may be smaller than they expect now, the three supervisory sources said.

The European Central Bank (ECB), which supervises euro zone banks, believes some lenders have overly optimistic assumptions about the economy, based on models that cannot fully capture the damage from the current bout of inflation, the sources say.

A spokesperson for the ECB declined to comment.

Morgan Stanley estimates euro zone banks will pay out 40 billion euros ($40 billion) in 2022 dividends plus an additional 60 billion euros in share buybacks between this year and next - an outsized return by recent standards.

But the prospects for future payouts are already dimming.

Italy's Intesa Sanpaolo ISP.MI has deferred until at least early next year half of a 3.4 billion euro buyback the ECB approved in June as it waits to see how severe Italy's economic contraction will be.

"It's not a good idea to pay out capital during a recession," Intesa's Chief Executive Carlo Messina told analysts last week.

And Sweden's central bank told lenders in the country on Wednesday "to be restrictive with regard to large dividend payments and share buybacks".

This year, the ECB has given the green light to all buybacks that were put up for approval, including from UniCredit, Societe Generale and ING INGA.AS , one of the sources said.

This provided welcome relief to shareholders who were still hurting from a de-facto payout ban at the height of the COVID-19 pandemic in 2020.

But some bankers feel the ECB's approval process for buybacks is too onerous, industry sources said, adding to their frustration at the ECB's decision to shelve subsidised loans and perceived intrusiveness in operational decisions.

But the ECB's top supervisor, Andrea Enria, has also been telling banks to be prudent going forward and factor in the risk of a recession when they plan for future payouts.

"There is a worrying dissonance between these positive expectations and the unique combination of risks we are currently facing," Enria, who chairs the ECB's supervisory board, said this week.

Bankers have been fighting back, comforted by capital buffers that are far bigger than at the time of the financial crisis and from an expected increase in income from rising interest rates.

After setting a hard figure for shareholder remuneration under a plan to 2024 in defiance of an ECB preference for payout ratios, UniCredit's CEO Andrea Orcel even pledged to match this year's 3.75 billion euro distribution goal next year.

And Deutsche Bank's Chief Financial Officer James von Moltke said on Wednesday the ECB and other institutions "should be moving to championing the banks to help the economy rather than not."

But some analysts reckon economic reality, regardless of any demand by the supervisors, may well change bankers' minds.

"With the economy entering recession, the time of massive bank payouts is over," Marco Troiano, a managing director at Scope Ratings, said. "Running down capital cushions would weaken banks."

($1 = 0.9945 euros)

European banks' payouts rebound post-pandemic Link
Capital buffers at euro zone banks Link

Editing by Mark Potter

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