Billions on the block - BOJ dividend suspension has potential price tag of $28b or more

Last Wednesday, Scotia Group Jamaica paid out about $1.7 billion to shareholders; and Sagicor Group Jamaica was expected to follow on May 6 with a distribution of about $1.2 billion.

Scotia’s distributions made it through the door just two days ahead of the central bank’s advisory of a suspension of dividends by regulated entities. But Sagicor, which had previously advised its shareholders that the distribution was on the way, replaced that notice with an advisory saying it would be deferring payment.

BOJ says the suspension of dividends to be paid for financial year 2020 and for unpaid distributions relating to year 2019 was mutually agreed with financial companies

While those institutions are still adjusting to the measure, which BOJ said was meant to preserve capital in case of fallouts from the coronavirus, investors have been telegraphing their displeasure through the repricing of listed financial stocks. That’s because of the size of the distributions involved.

Combined Dividend Value

Three of the largest financial institutions, NCB Financial Group, Scotia Group Jamaica and Sagicor Group Jamaica, paid out a combined $28.8 billion in dividends last year, the majority of which went to large shareholders based overseas. The year before that, they distributed $17.5 billion to shareholders.

Since the dividend suspension, which was announced after market close on Friday, financial stocks have lost billions in value as the market priced in the loss of dividends. The Financial Index lost 7.7 per cent over two trading days this week, outpacing the broader market’s decline of 5.6 per cent.

NCB Capital Markets, the investment arm of NCB Financial Group, described the BOJ announcement as “proactive”, saying the central bank aims to preserve capital and enhance the lending and the loss-absorption capacity of financial institutions.

Currently, financial institutions are well capitalised above 10.0 per cent of equity to assets, and non-performing loans remain low for the moment, the brokerage said. BOJ itself describes the banking system as “strong”.

But the sector is dealing with an unknown – what the full fallout from the COVID-19 pandemic is likely to be, NCBCap stated.

“Suffice to say we are not out of the woods yet, not even by a long shot, but proactive policy responses should help to reduce the impact of the blow to the economy and financial system,” the brokerage said in a notice to its clients.

NCB Financial Group, which holds Jamaica’s largest commercial bank, paid out $8.4 billion in dividends in 2019, and $6.7 billion in 2018.

No. 2 banking conglomerate Scotia Group Jamaica distributed $14.8 billion in 2019 that was inclusive of a special dividend, and $6.07 billion in 2018.

Sagicor paid total dividends of $5.62 billion last year, and $4.7 billion a year earlier, according to its audited report.

The 40 cents per share that Sagicor Group would have paid in a week will still be available, in the future, to shareholders on record as at April 24, 2020.

“The dividend that was declared is postponed until the regulator gives the financial sector the green light. We will pay it out at that point, whenever that is,” said president & CEO Christopher Zacca.

A chunk of the funds would have gone to real estate and investment conglomerate, PanJam Investment Limited, which holds 30 per cent of the shares of Sagicor Group Jamaica. However, PanJam, which is also listed, told the Financial Gleaner it would not comment on its outlook arising from the dividend cessation.

“In line with both existing practice and the rules of the Jamaica Stock Exchange, PanJam will not be issuing any guidance on our 2020 outlook,” said executive Joanna Banks. PanJam earned $1.7 billion in dividends from Sagicor in 2019.

Peter Melhado, chairman of Sagicor Group Jamaica, in a statement said Sagicor could have comfortably paid out the dividend based on its capital adequacy.

“We have acceded to the request by the Bank of Jamaica to financial holding companies as set out in its public notice,” said Melhado. “We sincerely regret the short-term impact this will have on shareholders; however, our decision is aligned with our regulator’s wishes and represents our commitment to Jamaica and the financial sector in light of the global COVID-19 pandemic.”

The BOJ had not responded to Financial Gleaner requests for comment up to press time. On Friday, when it advised of the suspension amid continued monitoring of the pandemic, the central bank said the measure covered all manner of dividends, whether distributed by cash or stock, until further notice.

steven.jackson@gleanerjm.com