TORONTO – Canada’s financial regulator said on Monday it could allow institutions to pay special non-recurring dividends under “exceptional circumstances,” even as it maintains a March moratorium on broader dividend increases and share buybacks.
The Office of the Superintendent of Financial Institutions believes there may be exceptional circumstances where a non-recurring payment of special, or irregular, dividends may be acceptable, it said in a statement on its website.
OSFI suspended share buybacks and dividend increases by Canadian banks and insurers in March as part of a raft of measures intended to gird against the economic impact of the coronavirus pandemic.
To qualify for exceptional circumstances, a firm’s capital and liquidity must remain strong following the payout, the special dividend should be limited to a special business objective and not be distributed to a broad group of shareholders, the regulator said.
“A cash dividend to common shareholders does not appear to be on the table,” National Bank Financial Analyst Gabriel Dechaine wrote in a note. “One possibility that comes to mind is (mergers and acquisitions). In such a scenario, excess capital domiciled in Canada could be shifted to a foreign subsidiary to facilitate an acquisition.”
Requests for the exception must be submitted at least 30 days before they’re declared, and will be reviewed individually, OSFI said.
OSFI said it has no plans to lift the broader freeze.
“There remains too much uncertainty to change our expectation on regular dividends,” it said. “While conditions seem stable now, the financial impacts of the COVID-19 pandemic are yet to be fully realized.”
(Reporting by Nichola Saminather; editing by Richard Pullin)
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