Euroclear, a key part of the infrastructure behind Europe’s financial markets, is shoring up its balance sheet at the expense of its shareholders to withstand the coronavirus downturn.
The Brussels-based private group — one of the world’s largest central securities depositories — said on Friday that it was stopping work on a project aimed at allowing small shareholders to cash out until markets had settled. It has also delayed approval of its dividend payment of €82 per share until the final quarter of the year after guidance from national and European central banks.
Euroclear provides key infrastructure in the daily operation of financial markets, safeguarding collateral on behalf of investors and finalising deals on their behalf. It holds more than €30tn of assets under custody on behalf of banks, asset managers and pension funds and settled deals equivalent to €837tn last year.
It has been exploring options for more of its small shareholders to cash out for some time, after several banks sold their stakes to Intercontinental Exchange and the London Stock Exchange Group.
But on Friday, the board of Euroclear said it “has decided to stop all work on a tentative liquidity initiative, and wait until economic activity and market stability has been restored in a sustained way to consider the matter again”. It added that it remained confident in its financial strength.
European regulators have urged financial institutions to stop payouts to preserve cash amid the crisis.
The utility’s moves were being watched by exchanges, private equity houses and banks after a wave of consolidation among market infrastructure operators in Europe.
The top 20 shareholders collectively own 72 per cent of Euroclear and the remaining 120 holders each own less than a 1 per cent stake. Many are smaller European financial institutions that are a legacy of merger activity in the early 2000s.
Jason Kalamboussis, an analyst at KBC Securities in Brussels, said the company “probably didn’t have any choice” but to follow the recommendations of the National Bank of Belgium and the European Central Bank. Although it is a securities depository, Euroclear is regulated as a bank.
But Mr Kalamboussis added the company, as an infrastructure provider, was better insulated from the economic effects of the virus than the banks. “So in essence it is akin to insurers which were asked to postpone share buybacks and dividends, and just delay them but not cancel them,” he said.
Euroclear recorded overall year-on-year revenue growth of 9 per cent in the first quarter, as trading activity spiked. However, it warned cuts to deposit rates had dented its interest-related income, and lower share prices would hurt full-year revenue predictions. Euroclear’s fees for safekeeping assets such as equities are dependent on market valuations.