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ECB issues tough conditions for resumption of bank dividends

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Banks in the eurozone will be able to pay modest dividends to shareholders again from the start of next year under strict limits outlined by Europe’s top financial regulator on Tuesday.

The European Central Bank’s supervisory board recommended banks only distribute up to 15 per cent of their past two years of profits to shareholders and no higher than 0.2 per cent of their common equity tier one capital.

Lenders should only restart dividend payments if they are profitable and have “robust capital trajectories” that can withstand the impact of the coronavirus pandemic, the central bank said.

The ECB, which oversees the 113 biggest lenders in the eurozone, also reiterated its earlier guidance for bank bosses to exercise “extreme moderation” on bonus payments by scrapping, deferring or converting into shares as many of their payouts as possible.

“We have been quite brave to ask banks to refrain from paying dividends at this difficult juncture,” said Andrea Enria, chair of the ECB supervisory board. “But at the same time we have to be reasonable — we are now moving out of that uncertainty, a vaccine has been rolled out and the macroeconomic outlook is lifting slightly, so we cannot play god forever.”

The new guidelines will last until the end of September 2021, the ECB said, at which point barring “materially adverse developments” it will return to its normal supervisory assessment of banks’ capital and dividend plans.

The move leaves eurozone banks more constrained on dividends than their UK rivals. The Bank of England last week said it would allow the strongest lenders to pay dividends worth up to a quarter of the past two years of profits or 0.2 per cent of risk-weighted assets.

The ECB ordered eurozone banks to stop all dividends and share buybacks to conserve €30bn of capital in March, shortly after the pandemic arrived in Europe. Since then, the sector has lobbied hard for stronger lenders to be allowed to resume payouts early next year.

The reopening of the door to bank dividends came shortly after several European countries, including Germany and the Netherlands, announced stricter lockdowns in response to a surge in coronavirus infections that are likely to push the eurozone into a double-dip recession.

Some officials have argued the banking sector should continue to conserve capital ahead of a potential surge in defaults that is likely when governments wind down their loan guarantees and other policies to shield the economy from the pandemic. The ECB has warned that in a severe scenario eurozone banks could be hit by €1.4tn of bad loans.

Mr Enria said there was “still a lot of work to be done to have more reliable figures on the outlook for non-performing loans” but he was now hopeful that the worst-case scenario of €1.4tn of extra bad loans would not materialise.

Mario Draghi, former president of the ECB, warned of “an emerging solvency crisis” that was likely to trigger a “cliff edge of insolvencies, especially of small-and-medium-sized enterprises, coming in many sectors and jurisdictions, as support programmes run off and existing net worth is eaten up by losses,” in a report by the G30 think-tank this week.

However, banks entered the pandemic with much higher levels of loss-absorbing equity capital than in the 2008 financial crisis, and senior bank executives have warned that the blanket ban on dividends risks backfiring by driving investors away from the sector and reducing its ability to raise capital. 

The ECB said: “Despite ongoing challenges, revised forecasts are close to the central scenario used in the vulnerability analysis conducted by the ECB in the first half of the year, which confirmed the resilience of the European banking sector.”

The US Federal Reserve has banned banks until the end of the year from buying back shares but only capped their dividends at either the previous year’s level or the average earnings for the past four quarters.



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Europe

France threatens to cut power to Jersey as fishing tensions rise

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France has threatened to cut off its power supply to Jersey in the Channel Islands, as tensions rise with the UK over the post-Brexit fishing regime.

Following the UK’s full departure from the bloc in January, French fishermen have expressed concerns at difficulties in receiving the necessary licences to fish in British waters.

The dispute also comes at a time when UK and EU negotiators are in discussions over the 2021 catch quota for shared fishing stocks.

Jersey, the largest channel island and a British crown dependency, receives 95 per cent of its electricity from France through underwater cables. Its foreign policy is governed by the UK, which means it is treated as a third country by the EU.

Annick Girardin, the French maritime minister, told France’s National Assembly she was “revolted” that Jersey had granted 41 fishing licences that included conditions and specific criteria that were “decided unilaterally and without explanation”.

“It’s unacceptable,” she told lawmakers. “We’re ready to resort to retaliatory measures . . . concerning Jersey, I’ll remind you of the transport of electricity via submarine cables.” Girardin added she would “regret” any action but “we’ll do it if we have to”.

French fishermen and ministers have been complaining for two weeks about the difficulty of gaining access to British waters despite the agreement on fisheries reached at the end of last year.

The anger among French fishermen at the delays in receiving licences for fishing in UK has prompted barricades for lorries arriving in Europe with UK-landed fish.

Clement Beaune, France’s junior minister for European Affairs, last week threatened to block regulations that would allow UK financial firms to do business in the EU if Britain does not respect its Brexit commitments on fishing.

Bertrand Sorre, an MP for President Emmanuel Macron’s governing La République en Marche party, gave the example of a fisherman from Granville in Normandy who had previously fished for scallops and whelks for an average of 40 days a year off Jersey; he had been told he could fish for only 11 days this year, and only for scallops.

Ian Gorst, Jersey’s external relations minister, said it had issued the licences in accordance with the UK’s trade and co-operation agreement with the EU and the new regime would “take time for all to adjust”.

“If French fishermen or the authorities have further evidence they would like to submit, we will update the licences to reflect that evidence,” he said in a statement.

The UK’s Department for Environment, Food and Rural Affairs said: “We are clear that Jersey is responsible for its own territorial waters.”

UK business minister Nadhim Zahawi urged both sides to “iron out” issues with fishing. “We’ve got to look at this urgently and the best way to fix this is to work together,” he told Sky News.

A senior UK official said the government had been taken aback by the strength of the French reaction, which was seen as an “aggressive escalation” given that the UK had been working together on the question of licensing. “It’s a strange way to behave, from what is meant to be a friendly country,” they added.



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Hello, Berlin? Germany’s future raises foreign policy concerns for allies

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The writer is Fritz Stern chair at the Brookings Institution

President Joe Biden has made it clear that he really, really wants to work with Europe. After the four traumatic years of the Trump presidency, that seems an opportunity not to be missed. Also, Moscow and Beijing are undeterred by US and EU sanctions over the jailing of Russian dissident Alexei Navalny and the mistreatment of Uyghurs in China.

They are dialling up the pressure on Europe with countersanctions, expulsions of diplomats and thuggish-sounding threats. But in Brussels, EU Commission president Ursula von der Leyen is fighting with European Council president Charles Michel over charges of sexism and a Turkish sofa, instead of getting a grip on a double-dip recession and the pandemic.

British premier Boris Johnson is in trouble over costly wallpaper. French president Emmanuel Macron, up for re-election in 2022, is neck-and-neck in the polls with his far-right rival Marine Le Pen, while retired and current military officers are warning of civil war.

This would seem to be the moment for Germany, as a responsible neighbour, to step up and help out. But Europe’s most powerful economy is going to the polls even sooner than France: on September 26. As the 16-year tenure of Chancellor Angela Merkel comes to a close, the six parties scrambling to rule in the post-Merkel era are somewhat less than focused on goings-on beyond Germany’s borders.

The reason is the fragmentation of Germany’s colour-coded party landscape. In current polling, the Greens are fighting for first place with the CDU (black) at about 25 per cent, with the Social Democrats (red) far behind at 15 per cent, followed by the liberal Free Democrats (yellow) and the Left party (dark red) at around 11 per cent each.

The far-right Alternative for Germany is so radical that Germany’s domestic intelligence service wants to place it under observation. No other party will work with it, but it still captures about a tenth of the vote. This increases the likelihood that Germany’s next government will be a three-way coalition, with a kaleidoscope of possible combinations: black-green (or the reverse, with the CDU as junior partner); “Jamaica” (CDU-Greens-liberals); “traffic light” (Greens-SPD-liberals); and finally, “R2G” (SPD-Left-Greens).

This is why the small parties’ ideas suddenly matter. But in terms of foreign and security policy, none of the five presents a fully reassuring image to a neighbour or ally of Germany.

The Left party’s only path to government is R2G, a goal the powerful leftwings in the Greens and the SPD have been actively pursuing. But the Left too has radicalised, shedding its once influential east German pragmatists. Its new top duo opposes military engagement abroad of any kind. But it is also apparently clueless about pensions, and that may alienate its base.

The FDP has cabinet-ready experts on finance, digital issues and foreign and security policy — and a liability in Christian Lindner, their leader. The CDU and Greens are still smarting because of his petulant walkout from coalition negotiations in 2017. Last year, he faced a revolt in his own party after supporting the decision of a regional liberal politician to let himself be elected state governor with the AfD’s help.

The SPD’s Olaf Scholz is caught in a double bind. As Merkel’s finance minister, the opposition accuses him of oversight failures in a spate of financial scandals. As candidate for chancellor, he has seen the SPD leadership wrench the party to the left with anti-nuclear slogans reminiscent of the 1980s. Fritz Felgentreu, one of several seasoned legislators to resign in protest, calls his party’s security policy a “smouldering fire”.

Armin Laschet, the CDU candidate, has come under fire for sounding soft on Syria, Russia and China. Yet his real problems are corruption scandals and circling party frenemies. His party may be dealt another blow in next month’s state elections in Saxony-Anhalt, where some polls have the AfD in close pursuit.

All this does much to explain the rise of the Greens and Annalena Baerbock, their laser-focused candidate. Her criticism of China, the Kremlin and the Nord Stream 2 pipeline project is music to Washington’s ears. Yet the party’s feisty base has had ferocious fights over defence spending and nuclear deterrence. Its reliability as a partner is by no means guaranteed.

Of course, elections are generally not fought, or won, on foreign policy. But German voters would do well to remember that their country’s wealth and power depends on the stability and security of its neighbourhood. Maybe it is time to pay attention, and get a little worried. Its neighbours and allies already are.



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Denmark drops J&J Covid vaccine over blood clot concerns

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Denmark became the first country to drop the Johnson & Johnson Covid-19 shot from its vaccination programme owing to blood clot concerns, weeks after also excluding the Oxford/AstraZeneca jab.

The Danish health authority said on Monday it had concluded that the benefits of the J&J vaccine did not outweigh its risks given that the country had the pandemic “under control” and had decent supplies of other jabs.

Deputy director-general Helene Probst said that Denmark would in the coming weeks be mostly vaccinating “younger and healthy people” and that the risk of causing severe blood clots weighed heavier than what it would lose from not using the jab to fight the spread of Covid.

“In the midst of an epidemic, this has been a difficult decision to make, especially since we have also had to discontinue using the Covid-19 vaccine from AstraZeneca,” she added.

Denmark is one of the European countries that has come furthest with reopening its society after Covid thanks to its “coronapas”, a certificate that states whether somebody has been vaccinated, had a recent negative test, or recovered from coronavirus in the past six months.

Bottled of the J&J vaccine
The Danish health authority said it had concluded that the benefits of the J&J vaccine did not outweigh its risks © Jorge Guerrero/AFP/Getty

The government removed the AstraZeneca jab from its vaccine programme owing to a rare, unusual set of symptoms — including blood clots, bleeding, and low levels of platelets — identified in some people who had received the shot. The first death of somebody with such symptoms — a 60-year-old woman — was reported in Denmark in early March. US authorities have since said that some people using the J&J vaccine, which has never been used in Denmark, had similar symptoms.

Denmark has almost offered everybody aged 65-74 a first dose of a vaccine and will soon start vaccinating those younger than that. The Danish health authority said the decision to drop J&J would particularly affect those aged 20-39, who now face a delay of up to four weeks, meaning everyone would be fully vaccinated by late August.

Denmark’s prime minister Mette Frederiksen had previously hailed the J&J jab as a “potential game-changer” as the vaccine requires only one dose, whereas the jabs developed by BioNTech/Pfizer, Moderna and AstraZeneca all require two shots.

The decision underscores how EU countries are increasingly turning towards the Pfizer and Moderna shot, which are both mRNA-based vaccines. Most EU nations have restarted use of the AstraZeneca shot but many have age restrictions, such as Sweden and Finland, which are only using it for over 65s.

An expert commission in Norway will report by next Monday on how the country should use the AstraZeneca and J&J vaccines. Health authorities there recommended dropping AstraZeneca as Denmark had done, but the government was worried about its implications for J&J, which it had originally foreseen as using to vaccinate most people aged 18-45.

J&J said that two weeks ago, the EU’s medicine advisory committee had “confirmed the overall benefit-risk profile of the vaccine remains positive”. 

“We believe a single-shot, easily transportable Covid-19 vaccine with demonstrated protection against multiple variants can help protect the health and safety of people everywhere,” the company added.

Additional reporting from Nikou Asgari in New York



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