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After UBS and Credit Suisse, private banks like Julius Baer and EFG are also bowing to pressure from their regulator on paying dividends. A group of holdouts show no sign of budging.

Swiss financial regulator Finma doesn't actually have the authority to halt dividends – and yet CEO Mark Branson managed it anyway. Four banks – UBS, Credit Suisse, Julius Baer, and EFG – have heeded the supervisor's call to protect their capital for crisis times, staggering payouts between spring and autumn instead of in one lump sum.

The four raise the pressure on a group of 24 local government-controlled cantonal banks – some of which are publicly listed and via subsidiaries, maintain operations outside of Switzerland. They include Banque Cantonale de Geneve and St. Gallen and Zurich's cantonal banks (the latter is listed as systemically relevant alongside UBS and Credit Suisse).

Status Rankles Peers

The cantonal lenders have shrugged off Finma's payout warnings so far. «The question of dividends is also pertinent for cantonal banks,» an umbrella organization said. «According to our knowledge, all cantonal banks with participation certificates or shares intend to play out their proposed dividend, or have already done so.»

The shrug-off will raise eyebrows among peers, where in recent months rancor against the state-backed lenders emerged. Taken together, cantonal banks continue to dominate the domestic market, which rankles competitors who complain of an uneven playing field. Besides local government as the lender of last resort, cantonal banks also enjoy tax breaks as well as advantages in refinancing themselves. 

Key Funding Source

As advantages as the local ties are – in the dividend debate, the cantonal banks are at the mercy of politics. The crisis sparked by the coronavirus will lead to shortfalls in regional tax income.

In turn, the reliable cash dividends paid out by cantonal banks will become even more important. Cantonal governments are set to argue that their banks are capitalized comfortably enough to stick to their payout plans with confidence. 

Whopping Payouts