No dividends for 5 years

[jandajoy]

Banks in bail-out scheme cannot pay dividends for five years under EU law

Banks taking part in Gordon Brown's emergency bailout are to be banned from paying dividends for up to five years under European laws.



By Robert Winnett, Deputy Political Editor
Last Updated: 9:30PM BST 16 Oct 2008

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The FTSE 100 is now down by 41 per cent this year. Photo: PA


The intervention by Brussels officials could threaten the Government's scheme.
The banks are now in urgent discussions with the Treasury to renegotiate the terms of the bailout. There are fears that the European stipulation could lead to the collapse of the Lloyds TSB-HBOS merger.
The issue is crucial as banks need to pay dividends to attract private investors. Pension funds rely on the payment of dividends for returns.
John McFall, the influential Labour MP and chairman of the Commons Treasury select committee, said dividends should be paid. "The Government wants the first cut for the taxpayers, and they don't want anything to get in the way, but if we are to have confidence in financial companies then we have to ensure that dividends are paid to make it attractive for investors to come in," he said.
"Because if investors don't come in then the Government will own even more, so we've got to get this balance."
Under the scheme unveiled by Mr Brown the Government will buy "preference" shares in at least three banks - Lloyds TSB, RBS and HBOS. The preference shares are different from ordinary shares as the banks must pay a fixed rate of interest to the holders of the shares - in this case the Treasury.
The rate of interest has been set at 12 per cent - higher than normal - which ministers hoped would mean the scheme did not fall foul of competition laws. The preference shares cannot be repaid for at least five years.
When announcing the scheme on Monday, the Government initially said that dividends may not be paid until the preference shares were repaid. However, after banking shares fell it was claimed that the Treasury had “clarified” the deal and that the dividend suspension could be renegotiated after a year.
However, the European Commission has ruled that the bailout can only proceed if dividends are banned until the preference shares are repaid. Jonathan Todd, a spokesman for the Commission, said: "The Commission wanted to ensure that there was a strong incentive for the banks to repay the state as quickly as possible.
"We did not consider that applying a penal interest rate would be sufficient to achieve that."
He added: "Initially the UK Government thought the penal interest rate would be sufficient disincentive for the banks. We insisted that the payment of the dividends should be suspended while the state still had the preference shares."
Mr Todd also claimed that the Government had agreed last weekend to the Commission's terms.
One of the banks involved in the bailout said that the terms of the deal would now have to be renegotiated. Other parts of the scheme - including a pledge to return lending to 2007 levels and to limit executive bonuses - are also in doubt.
However, Mr Brown in Brussels yesterday insisted that it was proceeding as planned. "We have stated what our position is and we will continue to look at it with the banks," he said.






http://www.telegraph.co.uk/finance/f...risis/3211151/
Banks-in-bail-out-scheme-cannot-pay-dividends-for-five-years-under-EU-law.html

[kingwilly]

So they cannot pay divdends, who is gonna buy shares in them then?
(ie raise capital)

Sounds like a feel good leftie scheme.

[Thormaturge]

I wonder whether those banks benefitting from the bailout scheme will still be giving business advice.

[kingwilly]

I wonder whether those banks benefitting from the bailout scheme will still be giving business advice.

On a similar note, I was just reading a book (belongs to the missus) about great companies....Amazon.com: Good to Great: Why Some Companies Make the Leap... and Others Don't: Jim Collins: Books

had to stifle a few laughs when he explained the reasons Fannie May is such a great company....

[jim1176]

I wonder whether those banks benefitting from the bailout scheme will still be giving business advice.

Advice about what? How to loose all your money?