23 Nov, 2020 12:27 23 Nov, 2020 12:27

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

Analysts at JP Morgan sounded a particularly positive note on the outlook for Barclays and NatWest Group after Bloomberg reported at the weekend that the Prudential Regulatory Authority would consider easing their resistance to dividend payouts from UK lenders on a case-by-case basis.

Banks

5,863.18

14:20 03/06/25

-0.56%

-33.31

Barclays

327.25p

14:15 03/06/25

0.06%

0.20p

FTSE 100

8,786.26

14:20 03/06/25

n/a

FTSE 350

4,816.89

14:20 03/06/25

n/a

FTSE All-Share

4,766.84

14:20 03/06/25

n/a

HSBC Holdings

870.90p

14:15 03/06/25

-0.57%

-5.00p

Lloyds Banking Group

76.88p

14:15 03/06/25

-1.18%

-0.92p

NATWEST GROUP

528.20p

14:15 03/06/25

0.11%

0.60p

Standard Chartered

1,139.00p

14:15 03/06/25

-0.18%

-2.00p

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).