Apr 07, 2022
Eurex
The Ukrainian crisis tempers the dividend rebound
"Current dividend levels are likely reflective of continuing uncertainty in banks’ ability to grow revenue and specific sector impacts where supply chain issues continue."
- Stuart Heath, Eurex
A recent post on Qontigo’s blog looked at the Russia-Ukraine conflict’s lasting effects on dividend index futures. Traders now expect dividends in the EURO STOXX® Banks Index, which expire in December, to increase 19% relative to 2021. In contrast, pre-war expectations predicted a 29% boost.
The Ukrainian crisis hit just as regulators lifted the dividend payments ban imposed during the pandemic. Before the conflict, it was expected that 2022 would show a full return of European bank dividends.
There are multiple factors affecting European banks’ ability to pay dividends. There are global economic growth concerns and expectations that the European Central Bank may slow down interest rate hikes. These factors have caused banks to lower their growth forecasts while upgrading their inflation forecasts. The uncertain environment pushes traders to hedge all their positions. According to Bloomberg’s Javier Manso Polo, this drags down the futures pricing, particularly by issuers of structured products.
Furthermore, in a 30 March ABN AMRO investor report, the economists report that the primary impact of the Ukrainian conflict pushes inflation even higher. They call for a policy that balances the need to get ahead of the inflation problem against the rising risk of recession in advanced economies.
