JP Morgan most positive on dividend restarts at NatWest Group and Barclays

That was good news for UK lenders, JP Morgan said, given their currently high common equity Tier one capital ratios and low valuations.

JP Morgan attributed the latter to the "elevated" economic uncertainty and the "unhelpful" blanket restriction on dividend payments.

"We view the UK banks as well capitalized, with the median capital buffer over the regulatory requirement (MDA) at 3.8%, after taking into account the forecast losses from the current recession as well as no IFRS 9 transition benefit," JP Morgan analyst, Raul Sinha, said in a research note sent to clients.

At 7.3%, NatWest had the highest CT1 buffer over the Maximum Distributable Amount, followed by HSBC on 4.6% and StanChart with 4.4%.

However, even though a high capital buffer was helpful for the decision to restart dividends, excess capital as a percentage of market capitalisation was highest at StanChart (25%), Barclays (19%) and NatWest Group (17%), the analyst said.

Hence, a case-by-case approach on dividends would be more positive for NWG and StanChart in our view due to high buffers as well as high excess capital. We continue to prefer BARC and NWG (both 'overweight') over Lloyds (neutral) and STAN (overweight) over HSBC (underweight).