In this period of economic shock caused by the coronavirus crisis, the Minister of the Economy and Finance announced on 27 March 2020 that he would refuse all support measures related to the consequences of the current pandemic to companies that would pay dividends to their shareholders. The granting of public aid, such as the deferral of social security and tax charges or the granting of loans guaranteed by Bpifrance, would therefore be subject to the non-payment of dividends to shareholders (as well as the non-purchase of shares).

It also called on companies using short-time working to “exercise the utmost restraint in the payment of dividends” (and in share buybacks, a priori), without calling on them to renounce it altogether.

At this stage, a textual basis is still needed before these calls for abstention or moderation become enforceable rules with sanctions (such as repayment of aid granted and payment of penalties). Nevertheless, the fact remains that large groups, in addition to those in which the State is a shareholder (Airbus, Safran), have already waived dividends, such as Altran, JC Decaux, Tarkett and Altice.

Since April 2, 2020, it has been indicated on the “Economie, des Finances, de l’Action et des Comptes publics” portal, “economie.gouv.fr”, that “a large company that requests an extension of tax and social security payments or a government-guaranteed loan undertakes:

• not to pay dividends in 2020 to its shareholders in France or abroad;
• not to buy back shares during 2020.

This commitment is applicable as of 27 March”.

An FAQ dedicated to this subject has even been published. [2]. It informs that “the large companies concerned correspond either to an independent company or to a group of several related entities which employ, during the last financial year ended, at least 5,000 employees or have a consolidated turnover of more than 1.5 billion euros in France. 1.5 billion in France. The definition of the group may be taken with reference to the definition used for the CVAE (Article 1586 quater I bis of the French General Tax Code) or tax consolidation (Article 223 A of the French General Tax Code)“. Bercy has therefore established criteria to target large groups more specifically and has defined criteria using the turnover and number of employees thresholds used for the loans benefiting from the public guarantee of 300 billion. Indeed, at present, companies with less than €1.5 billion in revenues and fewer than 5,000 employees can apply to the BPI, via the banks, to benefit from a public guarantee. Companies not exceeding these thresholds are therefore allowed to pay dividends, even if they would benefit from state support measures.

The French Association of Private Enterprises (Afep) reacted via a press release[3] of 29 March. It asks “of course” its members (including some banks) using the deferral of social security or tax payments and those who have obtained state-guaranteed bank loans “to apply the government’s decision [sic] to prohibit the payment of dividends in 2020“, the Afep refuses the same instruction for those benefiting from short-time working. Afep proposes an alternative: on the one hand, it asks its members using short-time working to “present at their next general meeting a new resolution in order to reduce the dividends to be paid in 2020 by 20% compared to last year“; on the other hand, it “asks the executive directors who remain in their position or telework to reduce by a quarter their total remuneration paid in 2020 for the period during which employees of their company are on short-time working. This unpaid compensation will be paid to national solidarity actions in relation to Covid-19“.

On 2 April 2020, the Socialists and Related Group in the National Assembly circulated a bill that it intends to table, aimed at “prohibiting the payment of dividends in 2020 to companies that have benefited from national solidarity in the context of the state of health emergency”, since according to it, Bruno Le Maire’s request “is purely intentional”. [4].

On 2 April 2020, the Socialists and Related Group in the National Assembly circulated a bill that it intends to table, aimed at “prohibiting the payment of dividends in 2020 to companies that have benefited from national solidarity in the context of the state of health emergency”, since according to it, Bruno Le Maire’s request “is purely intentional”.

Banks that meet the criteria are therefore affected by the government’s announcements to businesses. The banks are also subject to similar recommendations from their respective supervisory authorities, whether the ECB or the ACPR.

[1] ACPR, Communiqué de presse « L’ACPR appelle les établissements de crédit sous sa supervision directe et les sociétés de financement à s’abstenir de distribuer un dividende », 30 mars 2020

[2] Portail de l’Economie, des Finances, de l’Action et des Comptes publics « economie.gouv.fr », FAQ « Engagement de responsabilité pour les grandes entreprises bénéficiant de mesures de sotien en trésorerie », 2 avril 2020

[3] Afep, Communiqué de presse « Les grandes entreprises françaises et le Covid 19 », 29 mars 2020

[4] Groupe Socialistes et apparentés à l’Assemblée nationale, Projet de proposition de loi visant à interdire le versement de dividendes en 2020 aux sociétés ayant bénéficié de la solidarité nationale dans le cadre de l’état d’urgence sanitaire, 2 avril 2020

On 27 March 2020 the ECB published a recommendation “on dividend distribution policies during the COVID-19 pandemic and repealing Recommendation ECB/2020/1”[5] accompanied by a press release[6].

2.1      Objectives of the ECB’s Recommendation

The ECB explains that this recommendation was taken in order to improve the ability of banks to absorb losses and support lending to households and small, medium and large enterprises during the coronavirus pandemic. The objective is therefore that “bank shareholders contribute to the collective effort” and that banks “use funds which should have been dividends to support the borrowing of households and small, medium and large enterprises and/or to absorb losses on existing exposures to these borrowers“.

However, the ECB points out that its announcement “follows on from the ECB previous announcements of 12 March 2020 and 20 March 2020 regarding temporary relief measures to ensure that banks continue to support the economy”.

In March 2020, the ECB took steps to postpone the Basel 3 banking reform and to reduce capital requirements. It also lowered its long-term funding rate and decided to launch an emergency repurchase programme in response to the pandemic, involving the repurchase of €750 billion of public and private debt, which will be completed by the end of 2020. The ECB is ensuring here that banks do not use the aid to pay their shareholders.

ECB also seeks to preserve the stability of the financial markets in this way: the payment of a dividend by some banks, and the absence of such a payment for others, would have been a signal indicating which institutions were in a position to remunerate shareholders and which were not. Such a distinction would have added additional pressure on weaker banks.

The ECB’s recommendation not to pay a dividend is not, however, the counterpart of potential aid. Indeed, the ECB does not specify that the absence of a dividend is the counterpart of aid from the ECB to a bank. This is therefore a difference with the French situation in which large companies, whether banks or not, request a deferment of tax and social security payments or a state-guaranteed loan, the counterpart of which is the non-payment of a dividend.

2.2      Scope, purpose and duration

This recommendation is addressed to all credit institutions and major credit institution groups subject to the ECB’s prudential supervision. It repeals Recommendation ECB/2020/1 of 17 January 2020 on dividend distribution policies. As a reminder, an institution is considered “significant” if it fulfils one of the following four conditions:

• Size: the total value of its assets is more than EUR 30 billion.
• Economic importance: the total value of its assets is more than EUR 5 billion and exceeds 20% of national GDP.
• Cross-border activity: the total value of its assets is more than EUR 5 billion and the ratio between its assets or liabilities in more than one participating Member State and its total assets and liabilities is more than 20%.
• Financial activity: it is a beneficiary of direct assistance from the European Stability Mechanism.

An institution is also considered “significant” if it is one of the three most important credit institutions established in a Member State.

According to this text, the ECB recommends, at least until 1 October 2020, that no dividend should be paid and no irrevocable commitment to pay dividends should be made by the credit institutions concerned for the financial years 2019 and 2020, and that the said credit institutions should refrain from repurchasing shares with a view to remunerating their shareholders.

This recommendation is not retroactive. This recommendation is not retroactive, as it does not cancel the dividends already paid in respect of the 2019 financial year.

In order to cover as many situations as possible, in particular with regard to the legal form of credit institutions (which may be incorporated as listed companies or as companies other than joint-stock companies, such as mutual benefit societies, cooperative societies or savings banks), the ECB clarifies that the term “dividend” is to be understood in a broad sense and includes all forms of payment of funds subject to the approval of the general meeting.

As a result, the distribution of reserves before the 1st October 2020 falls within the scope of the Recommendation. On the other hand, it is surprising to note that the payment of an interim dividend in respect of the financial year 2019 or 2020 before the 1st October would therefore be permitted, since the payment of such an interim dividend does not fall within the competence of the general meeting but of the management body (the payment of such an interim dividend, however, seems to us to be contrary to the spirit of the recommendation).

With regard to the period of application of the ECB recommendation, no guarantee is given that the payment of dividends can take place after the 1st October 2020. Indeed, the ECB will continue to assess the economic situation and will determine whether it is appropriate to continue to suspend dividends after the 1st October 2020.

2.3       Sanction

Such a recommendation should not be binding, since it is only an incentive to adopt a particular course of action, an ECB recommendation being a legal act which is not legally enforceable. Article 110 of the Treaty establishing the European Community states that “recommendations and opinions [of the ECB] shall not be binding”.

However, it should be noted that Andrea Enria, Chairman of the ECB’s Prudential Supervisory Board, warned on 31 March 2020 that “If the banks decide not to comply with the recommendations, we will decide whether we need to take further action; we can also take legally binding measures if necessary”[6].In the event of the banks’ non-alignment with the ECB’s request, additional measures would therefore have to be provided for. In the meantime, the recommendation has a political influence.

However, the ECB clarifies that credit institutions which are unable to comply with the recommendation because they believe that they are legally obliged to pay dividends will immediately have to explain the underlying reasons to their joint supervisory team (JST). Consequently, a necessarily legal justification (such as the allocation of a “first dividend” under the articles of association – a case that is a priori rare in the French banking sector) will have to be presented if an institution is unable to comply with the recommendation.

In response to the ECB recommendation and despite the absence of sanctions, the boards of directors of some credit institutions were convened internally to discuss the subject of dividends. For the time being, institutions such as Société Générale and Natixis have indicated that their boards of directors will not propose to the annual general meetings to approve the distribution of a dividend. For Natixis, for example, the amount already provisioned in the bank’s accounts will therefore be reintegrated into its balance sheet, which will have the immediate effect of improving its solvency. As for Crédit Agricole, it has been decided to propose to the General Meeting, scheduled for May 2020, that the entire 2019 result be allocated to a reserve account: it will thus keep its options open for the last quarter. Later, BNP Paribas also announced that it would comply.

[5]  BCE, Recommandation BCE/2020/19 de la Banque centrale européenne du 27 mars 2020 relative aux politiques de distribution de dividendes pendant la pandémie de COVID-19 et abrogeant la recommandation BCE/2020/1

[6] Bloomberg, « ECB Steps Up Pressure on Bank Dividends to Weather Virus Crisis », 31 mars 2020

According to the abovementioned recommendation, the ECB expects national competent authorities to apply the recommendation to entities under their supervisory powers in the manner they consider appropriate.

Accordingly, the ACPR issued a press release on 30 March 2020 addressed to credit institutions under its direct supervision (and thus not under that of the ECB) and to finance companies.

The announcement made by the ACPR is the transposition of the ECB recommendation at national level.

The ACPR therefore calls on credit institutions under its direct supervision and finance companies to ensure, at least until 1 October 2020:

• that no dividends are paid and that no irrevocable commitment to pay dividends is made for the fiscal years 2019 and 2020,
• and that no share buybacks to remunerate shareholders take place.

Note that the term “dividend” is to be interpreted in the broad sense given by the ECB. It follows, as indicated above with regard to the major credit institutions under the supervision of the ECB, that the payment of an interim dividend in respect of the financial year 2020 before the 1st October cannot be incriminated (here again, the payment of such an interim dividend seems to us, however, contrary to the spirit of the appeal).

The objective of the ACPR – stated in terms very close to that of the ECB – is to ensure that credit institutions and finance companies retain capital to maintain their ability to support the economy in a context of increased uncertainty caused by the COVID-19 pandemic.

Like the ECB’s recommendation, there is no evidence that this appeal by the ACPR is binding and enforceable. On the one hand, the only medium that refers to the measures to be taken is a press release, which does not constitute a regulatory standard, nor is it accompanied by a regulatory or legislative text. On the other hand, the language used helps to argue that it is not an obligation because the ACPR “calls“, “believes“, “invites“: none of these words encourage firmness. The term “recommendation” is not used.

The consequence is that the question of the sanction for non-compliance with this recommendation arises. Since there is, at this stage, no text to support a legislative or regulatory basis, no sanction should be incurred.

However, recalling (as stated in the ECB’s recommendation) that “Credit institutions and finance companies that would not be able to defer the payment of dividends because they consider themselves legally obliged to do so should immediately explain the reasons to the ACPR. In the words of the Minister of Finance“, the only foreseeable consequence as it stands is a debate that could take place with the ACPR to justify the choice to pay a dividend.

Unlike the ECB, the ACPR is aimed at a legal, not a legal constraint that can justify the payment of dividends. The scope of the exceptions would therefore be narrower, without it being possible to understand why. As the ECB pointed out in its press release, it is to be hoped that the ACPR appeal will not call into question the distribution voted by shareholders prior to the ACPR announcement.

Another hypothesis in which the bank would be obliged to pay a dividend, but this time contractually, would be the case where the articles of association would provide for the compulsory payment of a “first dividend”, also called a “statutory dividend”, provided that there are distributable profits. Unless they incur liability, the managers of the institutions concerned would therefore be required to pay this “first dividend” in accordance with the articles of association. On the other hand, it would be up to the shareholders at general meetings to waive the right to receive it (with a majority at extraordinary general meetings if the articles of association were amended, at least from time to time).

In approaching credit institutions under its direct supervision and finance companies directly, the ACPR is not addressing the right interlocutor. Indeed, it is not the institutions mentioned that decide whether or not to pay a dividend, but their shareholders. As stated in Article L232-12 of the Commercial Code, shareholders are those who have the right to vote on the payment of a dividend at general meetings. As such, it would have been preferable to address shareholders rather than banks and finance companies.

Finally, the dividend suspension may continue after the 1st October, which again echoes the ECB recommendation: “The ACPR will further assess the economic situation and consider whether a further dividend suspension is desirable after the 1st October 2020“.

In the absence of sanctions and subject to political, reputational or media considerations, credit institutions and finance companies therefore still seem to have the option of deferring or not deferring the payment of dividends, unless genuinely coercive legislative or regulatory measures with sanctions are adopted in the near future.

Moreover, the postponement of a dividend payment to bank shareholders may only be the first manifestation of a broader set of measures affecting all players in the banking sector. The remuneration conditions of bankers and other risk takers could, in a second stage, also be impacted.

In a similar vein, the European Insurance and Occupational Pensions Authority (EIOPA) has also called on insurers to “temporarily suspend all discretionary dividend distributions and share buybacks to remunerate shareholders” [7]. The ACPR, which also regulates insurers, is expected to take a similar position in the near future.

[7] EIOPA, Communiqué de presse « EIOPA statement on dividends distribution and variable remuneration policies in the context of COVID-19 », 2 avril 2020