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Banking dividends to curb

Regulators around the world have been very keen in keeping the global financial systems functioning as effectively as possible, with the world being in very disturbed conditions due to the pandemic which has decimated the Global economy over the past few months. Many measures were implemented to ensure the ongoing system doesn’t hit the bottom and one such measure is the suspension of the dividends from the banking sector. Total dividends from all sectors globally fell by more than one-fifth to $382.2 billion in the second quarter of 2020, which is the biggest quarterly decline since the UK asset-management group began publishing its Global Dividend Index in 2009 and a further 14.3 percent drop to $330 billion followed in the third quarter, its lowest level since 2016. Majority of this decline can be directly due to the regulation imposed on the banking sector.

“Many authorities have restricted capital distribution by banks in their jurisdictions. This reflects a broad consensus that capital conservation beyond that envisioned in Basel III is an essential complement to the effective relaxation of capital requirements which is now being useful worldwide with the objective of preserving banks’ lending activity,” said the BIS (Bank for International Settlements) wrote in May. The banks have taken measures to ensure the lending abilities are maximized to the real economy, not via dividend limitations but also through actions taken to limit share buybacks and open bonuses that are normally paid to the bank staff. These actions have extensive impact on enhancing the lending capacity, especially through the effects of leveraging and ultimately helping in the transmission of badly needed funding to households and business affected by the Covid crisis. The BIS conducted a theoretical exercise with fixed balance-sheet ratios for 271 advanced-economy banks in 30 jurisdictions, finding that a broad suspension of bank dividends in 2020 during the COVID-19 pandemic would have added, under a different stress scenario, an additional $0.8–1.1 trillion of bank lending capacity, corresponding to 1.1–1.6 percent of the total gross domestic product (GDP) of the sample.

“One of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations, these are not insignificant. IMF staff calculated that the 30 global systemically important banks distributed about $250 billion in dividends and share buybacks last year. This year they should retain earnings to build capital in the system,” Kristalina Georgieva, the International Monetary Fund’s (IMF’s) managing director, wrote in May.  The US Federal Reserve System (the Fed) declared in June that it would restrict bank pay-outs after piloting stress tests that determined lenders would face substantial capital losses in a pandemic scenario, keeping concerns in mind. US bank decided to prevent banks from paying higher dividends than they did in the second quarter. The European Central Bank (ECB) took equally cautionary measures early on during the pandemic, initially urging banks to delay paying dividends until the final quarter of 2020 to free up €30 billion of capital that could be focused towards supporting offering to households and businesses, then subsequently in July extending this delay to January 2021. The Bank of England (BoE) also ordered UK banks in March to scrap almost £8 billion worth of dividend pay-outs that were due for the 2019 financial year, thanks to the arrival of the pandemic. Further measures like dividend policies in each country have, by and large, been applied across the board rather than regulators picking on individual banks. Credit and liquidity positions must remain as strong as possible in the meantime, which has meant that dividend suspensions have remained in place throughout much of the world. The Bank of England (BoE) also eased its dividend ban in December following the completion of two stress tests that found that the UK banking sector was sufficiently resilient in even extreme economic scenarios.

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Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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