Tier 1 FX dealers bag dividends as regulator shows lack of impartiality

There has never been a successful way to curtail people with choices.

Perhaps that is one of the reasons which have caused the banking regulator in the world’s most important financial center to allow dividends to be paid to senior Tier 1 bank executives in London, under the thinly veiled excuse that profits have overall been ‘better than expected’.

Tier 1 banks based in London, many of which have large investment banking divisions which represent the largest market share of interbank FX dealing globally, have been under huge strain lately, dogged by regulatory fines eating into revenues, flagging income and branch banking divisions which have over-exposed themselves to retail customers and small businesses under the hare-brained Bounce Back Loan scheme introduced by questionable Chancellor of the Exchequer Rishi Sunak in which the government promised that it would support businesses and freelancers that had been forced out of business by the government’s draconian lockdowns, when in reality the government was simply preventing people from working and then making the banks lend them money that they will never be able to repay.

Bank executives around the world had voluntarily elected to postpone receiving dividends during the course of this year, however the British authorities actually banned dividend payments to bank executives, a decision that was likely to have been made by the government as a propaganda attempt to demonstrate that it cares, when really the government’s decimation of the national economy, personal liberties, free enterprise and transfer of its own responsibility onto the banks resembles a scheme Joseph Stalin would have been proud of.

Today, the Prudential Regulatory Authority (PRA), which oversees the conduct of banks in the United Kingdom has lifted the ban on dividends, and they will now be paid out forthwith.

In an effort to avoid eye-watering payouts at a time when much of the country is still struggling, the PRA will not immediately give bank bosses free rein over their dividend policy, rather in the same vein that the British government will unlikely restore freedom and democracy to its people.

Instead of simply doing away with the restriction on dividend payments, the PRA has imposed ‘temporary guardrails’, limiting payouts to either 0.2 per cent of each bank’s risk-weighted assets or 25 per cent of their profits for the last eight quarters, after deducting any previous payouts.

Senior staff could also be able to gain their end of year bonus after all, as the regulator will lift its ban on extra pay. However, it urged lenders to ‘exercise a high degree of caution and prudence’ and warned it would scrutinise all proposals.

The PRA said: ‘Banks remain well capitalised and are expected to be able to continue to support the real economy through this period of disruption.’

In other important financial centers, there have been no such rules, and in some cases, Tier 1 FX dealers have been quick to pay dividends, despite falling profits.

In October this year, Credit Suisse said it planned to restart its share buyback plan next year, spending up to 1.5 billion Swiss francs to repurchase stock. The Tier 1 dealer also forecast a 2020 dividend five per cent higher than the previous year’s.

Shares in the bank fell as much as 5.25 per cent following the publication of the results. Credit Suisse shares have lost more than a quarter of their value so far this year – falling twice as much as those of arch-rival UBS, but staying ahead of the European banking index.

Being allowed to be rewarded for failure is a one way street. OTC derivatives firms in even a tenth of that much hot water would be wound up and dealt with by regulators in an instant, yet banks can do so without any question

Chief executive Thomas Gottstein said that if exceptional items were excluded, underlying performance across the bank’s main divisions had been healthy.

The drop in profits reflected a 327 million franc revenue boost Credit Suisse recorded in the same period last year from the sale of its InvestLab fund platform.

The results also included provisions of 152 million Swiss francs for major litigation expenses, and restructuring expenses of 107 million francs.

Back in the summer, Credit Suisse stated that it would make major changes with effect from August 1, 2020, includeing the creation of a global Investment Bank to build a client-centric global platform with critical scale for corporate, institutional and entrepreneurial clients. It will integrate Global Markets, Investment Banking & Capital Markets and APAC Markets.

Th initiatives included the creation of Global Trading Solutions and a globally integrated Equities platform. GTS will combine Credit Suisse’s International Trading Solutions and APAC Solutions to maximize the capabilities of Credit Suisse’s wholesale business for corporate, institutional and entrepreneurial clients. It is set to allow for further global technology integration, a unified risk set-up and the delivery of a wider range of products, greater scale and better pricing for customers.

Credit Suisse will also establish combined Chief Risk and Compliance Officer (CRCO) function to create alignment across its control functions.

Credit Suisse explains that the initiatives necessitate some changes within its executive leadership team. On July 29, 2020, the Board of Directors affirmed the amended Executive Board roles of Brian Chin and Lara Warner and the new role of Lydie Hudson.

As a result of these changes, David Miller will step down from the Executive Board. David Miller is committed to continuing his career at Credit Suisse.

Perhaps these are essential initiatives aimed at modernizing the bank, and gaining access to important markets which are vital in today’s fragmented electronic financial sector, and thus any dividends may be justifiable for future growth via R&D.

There, I have finally said something nice about a Tier 1 bank. Get the flags out….