Return journey

11 Dec 2020 By Liam Proud Follow @liamwardproud

The supervisor will let HSBC, Lloyds and others resume dividends and share buybacks next year. But its new “guardrails” will limit the sector’s overall yield to around 2%. While the original ban made sense, lingering restrictions may further raise banks’ cost of capital.

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The Bank of England on Dec. 10 said British banks can resume paying dividends and bonuses next year because they seem to be well-capitalised and resilient to any further hit from the coronavirus.

The central bank in March told Britain's biggest lenders to suspend dividends and share buybacks until the end of 2020, and to cancel payments of any outstanding 2019 dividends.

Any shareholder distributions paid out of 2020 earnings should be "prudent" and should not exceed the higher of two temporary "guardrails", it said. The first guardrail is 0.2% of a bank's risk-weighted assets at the end of 2020, and the second is 25% of cumulative earnings attributable to ordinary shareholders in 2019 and 2020, after deducting any dividends and buybacks over that period and adding back goodwill impairments.

At 0915 GMT on Dec. 11, shares in the top five UK-listed banks were down 3% on average. NatWest was the biggest faller at 4.6%, while shares in HSBC performed the best, with a 0.7% fall.

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Lowly Europe bank values will outlast dividend ban

Context News

The Bank of England on Dec. 10 said British banks can resume paying dividends and bonuses next year because they seem to be well-capitalised and resilient to any further hit from the coronavirus.

The central bank in March told Britain's biggest lenders to suspend dividends and share buybacks until the end of 2020, and to cancel payments of any outstanding 2019 dividends.

At 0915 GMT on Dec. 11, shares in the top five UK-listed banks were down 3% on average. NatWest was the biggest faller at 4.6%, while shares in HSBC performed the best, with a 0.7% fall.

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