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So bank shareholders are squealing for their dividends. They should be ignored | Banking

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Vaccines are on the way and economic Armageddon will be avoided (probably). So, since their capital buffers look strong, is it now time to allow banks to pay dividends again?

Dividend distributions were, in effect, suspended by the Bank of England in March when Covid descended on the economy. The vital priority was to keep credit flowing to households and businesses, which meant keeping capital within the financial system.

There was some token hissing from boardrooms but Threadneedle Street got its way: investors in banks were told they’d have to live without dividend rations until the end of 2020, at least, for the sake of general financial safety. European regulators acted similarly for eurozone banks.

In July, the Bank announced that it would review the ban by the end of the year, so the clock is ticking and the quiet lobbying has begun. In their latest sets of third-quarter results, the likes of Lloyds Banking Group, Barclays, NatWest and HSBC paraded their strong capital ratios and explained how their provisions for looming defaults were based on deeply conservative assumptions. In other words: this wasn’t a re-run of 2008-09, when thinly capitalised major lenders variously collapsed or were rescued by the state or their own shareholders.

And yes, it’s true that banks’ capital position is vastly improved. In Barclays’ case, its core ratio at the end of September was 14.6% – a full three percentage points above its regulatory minimum. And regulatory minimums, remember, have themselves been cranked up significantly since the bad old days.

So, in theory, shareholders’ grumble that regulators are making banks “uninvestable” by banning dividends has some force. Regular income is meant to be the main prize for owning bank shares. If the income doesn’t flow, goes the argument, you damage the investment appeal of banks and, in the end, make it harder for them to raise capital in a true crisis. Banks certainly look like unpopular investments right now: Lloyds’ share price was 60p immediately before the pandemic; it is 38p now, and dipped as low as 25p in September.

So should the Bank sound the all-clear and grant the clear wish for dividends?

The answer is no. The dividend ban was a precaution against an economic emergency – and we still don’t know how bad the emergency will be.

Progress with vaccines has been extraordinary but nobody, apart from the admirable volunteers for the pharmaceutical companies’ trials, has been vaccinated yet. The logistical challenge of giving jabs to millions of people in the general population is immense. Will normal economic life resume by next summer, next autumn, next winter or sometime in 2022?

The uncertainties make it hard to assess the real size of the bad loans coming down the track for banks. Provisioning models assume severe falls in house prices, sharp increases in unemployment and so on, but it’s still early days and we don’t know what will happen when the props the Treasury has put under the economy are removed. The £400bn-ish increase in public sector debt this year is likely to mean the scale of the economic misery only emerges once the virus has passed.

As for the “uninvestable” argument, it’s beguiling but wrong. Capital earmarked for dividends does not evaporate if it is retained. If provisions prove adequate, shareholders should get their cash eventually. Investors today can still take a view on the odds.

The Bank should opt for prudence and leave the dividend ban in place for the time being. At the very least, it should wait until we know lockdowns are no longer required. This is still a moment for caution.

Clamour for low fares may drown out fears about the 737 Max

Finally, things are on the up for Boeing and the airlines that staked their fortunes on its 737 Max aircraft. The plane described as a “flying coffin” in a US Senate inquiry has been certified safe again, and could be flying by new year.

Airlines that were attracted by its fuel efficiency and potential extra profits are more anxious than ever for any marginal gain. Ryanair will be the first in Europe to take fresh deliveries, and chief executive Michael O’Leary, with customary tact, has continued to trumpet the savings from the “gamechanging” plane he ordered. It is as if the intervening years had seen nothing other than technical delays, rather than two catastrophic, avoidable crashes that took 346 lives.

It remains to be seen what kind of PR job may be needed to reassure the public. O’Leary has always maintained that a cheap fare outweighs bad publicity, and proved it when his bargain flights lured thousands of passengers to hitherto uncherished locations.

Riskier is the kind of pledge repeated last week by Steve Dickson, head of US regulator the FAA: he put his family on the line by saying he would be comfortable seeing them aboard a 737 Max.

Grounded Boeing 737 Max aircraft parked at Boeing facilities at Grant County International Airport in Moses Lake, Washington.
Grounded Boeing 737 Max aircraft parked at Boeing facilities at Grant County International Airport in Moses Lake, Washington. Photograph: Lindsey Wasson/Reuters

That tactic was memorably pioneered by John Gummer, agriculture minister in the 1980s British Conservative government. Four decades on, the image of him feeding a burger to his four-year-old daughter Cordelia is a vivid reminder of something nasty possibly lurking in beef, when fears over BSE itself are long forgotten.

Doubtless Boeing’s publicists will know better than to ever parade the Dickson family on the steps of a 737 Max. Airline bosses anyway believe the model of aircraft in question will soon be once again a question only for enthusiasts or geeks; and that cheap Max flights, like cheap burgers, will be swiftly gobbled up.

BMW’s investment in a UK factory is good news and bad

In normal times, the announcement of extra work for a UK factory might be seen as a victory for workers. But these are not normal times for the car industry, and BMW’s decision to move more engine production to its Hams Hall factory in the West Midlands should be treated with caution.

The German carmaker will start producing new electric cars at its main Munich factory by 2024, and will increase production of traditional internal combustion engines at Hams Hall and at one other plant, in Austria.

Even discounting the effects of the pandemic, the UK car industry faces a tumultuous few years, with Brexit and the move to electric vehicle production looming. The way things will go in the UK was made even clearer by this week’s news of a sales ban on pure fossil-fuel cars after 2030.

In this context, it is a disappointment to see BMW’s investment in new technologies go exclusively to Germany: the Hams Hall plant has experience with hybrid technology, combining internal combustion with batteries.

All hope is not lost. European and Japanese carmakers clearly value their existing UK factories, including BMW’s production of the electric Mini in Oxford. The choice to move more production to Hams Hall shows that the UK still has top-class automotive capabilities, and the extra work will help see workers through potential Brexit disruption or a dragged-out pandemic recovery.

However, a degree of scepticism is not the same as looking a gift horse in the mouth. Extra work now is all very well, but carmakers know their future is electric. Missing investment now isn’t the end of the world, but if the missed opportunities mount, it will spell eventual trouble for the UK automotive sector.

BMW has described the move as “systematically gearing its main plant in Munich towards the future”. It also leaves its UK operations focused on technology that will soon be in the past.


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Cramer unveils list of ‘return to normalcy’ stocks on vaccine optimism

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Sportsdigita’s software, used by major sports teams, sees growth during pandemic

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Angelina Lawton

Source: John Wagner

Sportsdigita, an all-in-one cloud-based presentation software company owned by former National Hockey League executive Angelina Lawton, sees opportunity amid the pandemic as sports teams conduct business online instead of in person.

The company, which counts the Chicago Bears, Los Angeles Lakers, Boston Red Sox, Pittsburgh Steelers and New York Yankees among its clients, is raising $10 million to $25 million in Series A funding. It may use some of the money it rasies to acquire smaller firms that have been hurt financially by Covid-19.

Sportsdigita is a subscription-based software company that’s seen growth since Covid-19 halted in-person meetings. It offers customized presentations and integrates video conferencing and presentation software. It competes with other services, like Microsoft PowerPoint and Microsoft Teams, both of which are included in an Office subscription.

But Sportsdigita considers itself “PowerPoint on steroids” because its Digideck software offers customized presentations for sports teams’ sales and marketing groups, which use them in pitches with corporate partners. Lawton said the Sportsdigita’s Digideck platform’s professional services, which come with subscriptions, help it stand out against competitors.

“That is a big differentiator between us and our competitors,” Lawton said. “We actually do the heavy lifting with the creative and design services. We’ll do the presentations and hand them over to teams once they are done, versus our competitors that will sell their product and then it will be up to the company or the professional team to put their packages together.” Subscriptions to Sportsdigita range in price from $20,000 to $500,000.

Lawton said the coronavirus pandemic sped up Sportsdigita’s development cycle, too.

“Prior to this, we were relying on getting on airplanes and face-to-face meetings,” Lawton explained, noting the product wasn’t scheduled to launch until 2021 or 2022 but was prioritized due to the pandemic.

Lawton said the Series A funding will better position Sportsdigita to gain market share among other companies that offer sales enablement software. MarketsandMarkets said in 2019 that sales enablement will be a $2.6 billion market by 2024.

Sportsdigita took a $3 million seed round in 2017 led by venture capital company Peak6 Investments. One of its investors is well-known Minnesota sports journalist Sid Hartman, who died on Oct. 18. Lawton said the company has 40 employees and wants to grow to 60 in 2021.

“In a baseball game, we’re in the fourth inning,” Lawton explained, describing Sportsdigita’s future. “These next innings will be critical for our success as far as how we pivot and grow.”


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CDC should warn people the side effects from shots won’t be ‘walk in the park’

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A volunteer is injected with a vaccine as he participates in a coronavirus disease (COVID-19) vaccination study at the Research Centers of America, in Hollywood, Florida, September 24, 2020.

Marco Bello | Reuters

Public health officials and drugmakers must be transparent about the side effects people may experience after getting their first shot of a coronavirus vaccine, doctors urged during a meeting Monday with CDC advisors as states prepare to distribute doses as early as next month.

Dr. Sandra Fryhofer of the American Medical Association noted that both Pfizer and Moderna’s Covid-19 vaccines require two doses at varying intervals. As a practicing physician, she said she worries whether her patients will come back for a second dose because of the potentially unpleasant side effects they may experience after the first shot.

“We really need to make patients aware that this is not going to be a walk in the park,” Fryhofer said during a virtual meeting with the Advisory Committee on Immunization Practices, an outside group of medical experts that advise the CDC. She is also a liaison to the committee. “They are going to know they had a vaccine. They are probably not going to feel wonderful. But they’ve got to come back for that second dose.”

Participants in Moderna and Pfizer’s coronavirus vaccine trials told CNBC in September that they were experiencing high fever, body aches, bad headaches, daylong exhaustion and other symptoms after receiving the shots. While the symptoms were uncomfortable, and at times intense, the participants said they often went away after a day, sometimes sooner, and that it was better than getting Covid-19.

Both companies acknowledged that their vaccines could induce side effects that are similar to symptoms associated with mild Covid-19, such as muscle pain, chills and headache.

One North Carolina woman in the Moderna study who is in her 50s said she didn’t experience a fever but suffered a bad migraine that left her drained for a day and unable to focus. She said she woke up the next day feeling better after taking Excedrin, but added that Moderna may need to tell people to take a day off after a second dose.

“If this proves to work, people are going to have to toughen up,” she said. “The first dose is no big deal. And then the second dose will definitely put you down for the day for sure … You will need to take a day off after the second dose.”

During the meeting on Monday, Patsy Stinchfield, a Children’s Minnesota nurse practitioner, said officials and drugmakers could try talking about the side effects in a more positive way. She said they could use language such as “response” instead of “adverse reaction.”

“These are immune responses,” said Stinchfield, a past voting member of the committee. “And so if you feel something after vaccination, you should expect to feel that. When you do, it’s normal to have some arm soreness or fatigue, some body aches and maybe even a fever. It sounds like in some of these trials, maybe even having to stay home from work.”

“You hear some people in the trials that are disappointed that they didn’t have any of those things, feeling they must have gotten a placebo” she added.

The committee meeting comes three days after Pfizer and its partner BioNTech applied for an emergency use authorization from the Food and Drug Administration for their coronavirus vaccine.

The FDA process is expected to take a few weeks, and an advisory committee meeting to review the vaccine has been scheduled for early December. Some Americans could get their first dose of the vaccine in about a month.

ACIP is expected to call an emergency meeting to make specific recommendations on distribution once the FDA authorizes a vaccine.

Federal agencies are already sending vaccination plans around to staff. Five agencies have started telling employees they could receive Pfizer or Moderna’s Covid-19 vaccine in as little as eight weeks, a person with first-hand knowledge of those plans told CNBC on Friday.


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