Mark Branson, Switzerland's banking overseer, yesterday urged the industry to heed the call for prudence. To little avail.

The plunge was historic: faced by a pandemic, Switzerland's biggest financial companies lost half of their value within a couple of weeks.

But through that very plunge, the shares of Swiss insurers and banks in one sense became even more attractive. The dividends they had promised to pay with last year's profits looked enormous – at reinsurer Swiss Re for instance the share price was barely ten times the size of the dividend it had planned to give to shareholders.

Words of Caution

But these dividends, which to many shareholder are isolated glimpses of hope in a difficult time, are the cause of concern for the regulator. Mark Branson, head of Switzerland financial market regulator (Finma), cautioned the industry to be prudent in the use of their cash given the uncertain future of the world economy.

He didn't restrict his words of caution to the official channel available to a federal authority, but also penned a comment that was published by «Neue Zürcher Zeitung», the newspaper of the Swiss elite. In his column, he tried to appeal directly to managers.

Banks and Insurers Under Pressure

«In the current situation of volatile financial markets and a worsening of the global economy, both banks and insurers will get to feel an increasing pressure on their books of credit and investments,» Branson wrote. «Strong institutions that voluntarily restrict or push back their dividend payments, will remain strong longer in the interest of their clients.»

Still, the companies he addressed don't intend to heed his advice. They retain their plans to pay the dividends as promised, according to the answers from the companies to a request by finews.com. Of course, they don't exclude the possibility of a reevaluation of their decision should the situation get worse.

Tough Question

Of the six companies contacted – UBS, Credit Suisse, Julius Baer, Swiss Re, Zurich and Swiss Life – none has indicated so far that it plans to push back or even drop the dividend promised to shareholders. While Swiss Re and Swiss Life referred to statements published, others were more blunt.

UBS CEO Sergio Ermotti told «Bloomberg TV» that the company was able to both fulfill its duties to shareholders and to the economy at large. He said the issue was sensitive, adding that each bank had to make their own proper evaluation of what was best for stake- and shareholders.

Wave of Defaults

Ermotti also warned that by not paying a dividend during a crisis a company risked a stigma that might stick. His position was in clear contrast to those voiced by bankers in other countries.

Even some major asset managers would accept a decision to push back the dividend payments if that would help the companies stay financially sound,  the «Financial Times» wrote (behind paywall). A representative of U.S. giant Fidelity warned explicitly of an impending wave of defaults that could endanger the banking industry.

Branson Partial Success

Credit Suisse, which compared to UBS is giving a relatively small part of its profit to shareholders, plans to retain its sustainable dividend policy, as it called it. Julius Baer meanwhile didn't take the hint, because the bank is not catering to the small- and medium-sized firms and doesn't receive any money in connection with the rescue package decided upon by the government.

But, British-born Branson at least can claim a partial success. All the companies in his brief have cancelled or paused share buyback programs.

Finma, Devoid of Power

But both Finma and its director can do nothing but argue in favor of being cautious. As long as the banks and insurers of the country fulfill all requirements on how much capital they hold, the body can not prevent them from paying part of their profit as a dividend to shareholders.

At insurer Zurich, Branson was too late anyway. The company will hold its annual general meeting next week and has scheduled the vote on the 20 franc dividend as planned.

Too Late for Measures

«Judging from what we know today, we don't expect that the Covid-19-crisis will have financial repercussions on our company of a scale that would put a question mark over the payment of the dividend,» a spokesman for Zurich wrote. «We are still well capitalized and are comfortably above regulatory requirements.»

If the Swiss top managers in the financial market were to err in their analyses and fall below the requirements set by Finma, it would evidently be too late: as a matter of fact, banks have even profited from the high trading volumes in the first quarter and big losses would not become public before the end of June. 

By that time, the billions of francs will have been paid out to shareholders and any measure taken would come too late.