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As per the announcement made by Legal & General Plc on 3rd April 2020, the company is going to pay £753 million dividend to shareholders, defying Bank of England’s warning to suspend the pay-outs during this difficult time of novel coronavirus epidemic. While other prime lenders of the nation like Standard Chartered, HSBC, Barclays, Lloyds etc. have agreed to obey the orders of the Bank of England’s Prudential Regulation Authority to cancel their pay-outs, the leading financial services groups Legal & General Plc has decided to go against the wind, taking the wrath of the central bank in favour of its shareholders.
Legal & General Plc has stated that it is going to pay a final dividend of 12.64 pence per share (2018: 11.82 pence) or a total of £753 million, which is 7 per cent higher than FY2018. For the entire year, the total dividend pay-outs will be over £1 billion.
The company said stated that the board is taking all efforts to protect its employees and customers during a complicated situation. However, it also understands the significance of dividend to specific shareholder in the present circumstances. The leading Insurance company, Legal & General Plc, further said that it would play its crucial role in supporting the real economy. Though, the shareholders of the company were not hopeful of this decision and had dragged the shares of the FTSE 100 Index company by 10 per cent by the market close.
Now it’s being said that the insurer’s defiant mood could trigger a war of words with the Bank of England. Also, now all eyes would be on other major insurers, including Churchill-owner Direct Line, Aviva and RSA, which has already cancelled a £150 million share repurchase. Nevertheless, many insurers are facing a wave of claims from businesses who have missed out on profits expectations due to shut down and event terminations.
As per some media reports, European regulators have also advised businesses to reassess the pay-outs. Recently, the European Insurance and Occupational Pensions Authority stated that it had “requested that in the current situation, the insurers should suspend all discretionary dividend distributions temporarily as well as share repurchase meant to compensate shareholders”.
Various concerns were raised over forcing dividend cuts and pay-outs such as:
- The Insurance companies in the United Kingdom are able to pay dividends, so pushing them to suspend the payment would call into question Solvency II.
- The United Kingdom insurance sector is controlled independently by the Bank of England. However, there is fear the European Union’s move would pressurise UK insurance company to halt the payment.
- Preventing to distribute income possibly would trigger bigger problem, as the insurance sector of the United Kingdom is one of the key sources to the income sector, which is trusted by pensioners.
- Companies could be under fire from the investors, which will negatively impact their share prices.
British banks to cut £8 billion dividends amid recession fears
On 31st March 2020, the Bank of England had ordered banks to suspends plans amid to increase their strength shortly during the economic slump. After this statement, the biggest banks of the United Kingdom which includes, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered confirmed they would defer shareholders pay-out temporarily during the year 2020, as well as share repurchase for the year 2019. The suspension of the 2019 dividends will give the banks an additional financial buffer worth around £8 billion, as they are compelled to provide loans to companies and households during novel coronavirus lockdown.
Prudential Regulation Authority (PRA) boss, Sam Woods had said to executives that the PRA expects, the banks would not pay any cash rewards to senior members, which includes all material risk-takers. He further said that he believes that banks are already working on it and would take the right decision related to cash pay-outs and additional reward over the coming months.
Overview of Legal & General Plc
Legal & General Plc (LON:LGEN) is the provider of financial services to clients all across the United States and the United Kingdom since last around 200 years. It is one of the most prominent managers of corporate pensions scheme and a leading provider of Life insurance products in the United Kingdom, which helps the clients to make a better financial future. The company's main objective is to enhance the lives and create a healthier society for long future as well as value for the company's investors.
(Source: Company Website)
LGEN - Share Price performance
On 03rd April 2020, Legal & General Plc’s stock closed at a price of GBX 159.70 per share on the London Stock Exchange, a decline in the value of about GBX 17.85 or 10.05 per cent, as compared to the closing price of the previous day, which has been reported to be at GBX 177.55 per share. The one year high of the company’s stock price was recorded on 13th December 2019 at GBX 324.70 whereas its one-year low stock price was recorded at a price of GBX 138.0 on 19th March 2020. The current share price was down by 50.81 per cent from the one-year high price. The stock’s yearly dividend yield was reported to be at 9.90 per cent, whereas the yearly dividend was reported at GBX 17.57 per share. As on 3rd April 2020, the market capitalisation of LGEN was reported at GBP 9.53 billion, while its Beta stood at 1.38, which indicates that the share price movement volatile as compared to the movement in the comparative benchmark index.
