JP Morgan sees increasing chances of capital returns from UK banks in 2021

"We believe it’s hard to overstate the importance of [a successful Brexit deal] (despite lower economic impact) for UK bank share prices as well as potential capital return," analysts at JP Morgan said.

In a research note sent to clients, the analysts said that such an outcome it would eliminate a "material" tail risk for the lenders' capital plans and "significantly" impact the Prudential Regulatory Authority's view of the capital resiliency and capital returns for UK domestic focused banks.

The investment bank had penciled-in no dividends for 2020 but now saw an "increasing probability" of capital returns in 2021 "especially if our base case of a last minute deal plays out".

The news would be a positive for the whole sector, but especially for Barclays and Natwest Group.

Shares of the two lenders were changing hands on just 0.3 and 0.4 times their tangible net asset value, respectively.

Yet their excess capital over Basel 4 adjusted target capital in 2022 stood at 36% and 37% of their respective market capitalisations.

However, in their opinion it was Stanchart "with excess capital of 36% of market cap with no gearing to UK is best positioned to resume dividends and share buybacks early in 2021 regardless of UK macro uncertainty."

JP Morgan was at 'overweight' for all three lenders.