Scrip dividends are continuing to boost fees across the
European securities lending market, statistics from IHS Markit
Beneficial owners earned over $106m of securities lending
revenues around the 85 scrip dividends paid by Stoxx 600
constituents last year.
This represented 7.2% of the entire European securities
lending revenue generated in 2016 - up from 4% in 2014.
Meanwhile total value of European scrip dividends has jumped
ten-fold in over the last 10 years to reach €27bn in
"Economic headwinds in Europe have grown the cohort of cash
conscious companies offering investors the option of receiving
dividend payments in shares through scrip options," IHS Markit
analyst Simon Colvin said in a note.
Issuers offer shareholders the choice of receiving a cash
dividend or a scrip dividend (new shares) at a discount to the
However, some funds are unwilling to take the scrip because
their holdings would become larger than their investment
In such cases, stock can be lent out with the borrower -
often a prime broker on behalf of a hedge fund - choosing
the scrip and selling the newly issued shares in the
Proceeds are used to pay the lender the cash dividend they
have forgone by lending the shares.
The borrower makes a profit equal to the difference between
the market value of the shares and the cash dividend, less the
stock lending fee.
"As the securities lending industry evolves and some of the
historic sources of revenue generation decline, other sources
of income are replacing them," Paul Wilson, global head of
agent lending product and portfolio advisory at JP Morgan,
told Global Investor/ISF.
"Maximizing revenue from sub-optional scrip elections is
becoming a low impact, high revenue opportunity especially with
the increase in the number of companies offering a scrip
"We are finding our clients increasingly engaged and
motivated in this area," Wilson added.
Data from IHS Markit shows financials and commodities
companies have been some of the keenest scrip payers over the
Aegon, EDF as well banks Barclays and Credit Suisse are
forecast to make scrip payments in the coming 12 months.
"The fact that these companies are among the most volatile
side of the market bodes well for securities lending revenues
heading into 2017," Colvin wrote this week.
"Credit Suisse is especially significant as it is the third
largest European scrip payer and the securities lending market
generated $2.4m of revenues the last time it paid a dividend
back in June of last year."
While significant, the analyst points out that these numbers
still pale in comparison to the $7.3m of securities lending
earned by lending shares of largest scrip dividend payer,
"Its scrip optionality is doubly attractive as the bank pays
its dividends in dollars, which allows investors to lock in
from both forex and equity volatility," he added.