ECB Effectively Keeps Dividend Suspension in Place; Limited Distribution for 2020

For all intents and purposes, the European Central Bank has extended its shareholder distribution suspension for European banks until September 2021. Supervisors did give a small concession in the form of reduced dividend distributions for 2020, but essentially the suspension remains in place. We think the ECB has struck middle ground in its decision, trying to appease banks and their shareholders as well as securing financial stability in uncertain times. We also believe the distribution limit has been set to such a level that all banks could stomach it. This is important from a supervisory standpoint as it avoids any potential signaling of which bank is currently under higher capital constraints. Because of this signaling effect, we expect banks to bend over backwards to pay the maximum allowed dividends in 2020 if permitted by supervisors. With the exception of the banks we anticipate to be loss-making this year, and therefore not eligible to pay dividends under the new guidance, we estimate that all banks under coverage have the capacity to pay up to the maximum amount allowed. Our fair value estimates and moat ratings across the board are unchanged.