All eyes on dividends: What to expect from Barclays and Natwest this week
Barclays and Natwest will be the first of the major high street banks to report full year results this week.
It has been a difficult 12 months with Brexit weighing on sentiment in addition to the fallout from the pandemic.
All eyes will be on dividend payments after the Prudential Regulation Authority effectively banned payouts last year. The Big Five banks – which also include HSBC, Standard Chartered and Lloyds – are expected to pay out £5bn in dividends for 2020 and £8.1bn in 2020.
The banks’ ability to pay out to shareholders will depend largely on profit. Bad loan provisions will be one factor to consider with investors hoping British banks follow their US counterparts in trimming the pile of cash set aside for bad loans.
Another threat comes in the form of pressure on net interest margins because of record-low interest rates.
“This makes debt more affordable for borrowers but the lower differential between the rate at which banks can raise capital (via customer deposits or wholesale debt markets) and the rate at which they can lend that out erodes their ability to earn a profit,” Russ Mould, investment director at AJ Bell said.
Barclays‘ investment bank set to offset pandemic hit
Barclays, which reports on Thursday, has been the best performing bank amongst the big four, with shares down 15 per cent since the end of 2019.
In October Barclays set aside £608m for bad loans in the third quarter, which came on top of the £3.7bn set aside in the first half of the year. The bank said provisions for the second half were likely lower but given the onset of a third lockdown this optimism may be misplaced.
Analysts expected the bank to set aside £689 in provisions for the fourth quarter bringing the full-year total to £5bn.
“On the plus side if the recent performance of US banks is any guide, along with recent steepening of the yield curve, the investment banking division could well help offset any underperformance in its retail operations, with any outperformance offering an insight into when management might look at reinstating the dividend,” Michael Hewson of CMC Markets said.
Barclays benefited from a surge in trading volumes in the first nine months of 2020 with income from the group’s investment banking arm rising 24 per cent to account for over half of the bank’s total revenue.
Analysts expect Barclays to report a profit of £2.8bn for 2020, down from £4.4bn the previous year. It is also expected to declare a dividend of 3.5 pence per share for the year.
Sky News reported that chief executive Jes Staley is set for a bonus payment between £500,000 and £800,000, which will be deferred and paid in shares.
Natwest eyes bad loan provisions
Natwest’s profits in the third quarter came in well above expectations at £355m for the three months to September but given the subsequent lockdowns it may see an uptick in bad loans.
The bank set aside a further £254m last quarter, compared to an expected £630m bringing the cumulative total to around £3.2bn.
“NatWest has proved more than resilient than expected given the economic damage wreaked by Covid on the UK economy. The bank has a large number of small and medium sized business customers and there was a surge in companies seeking access to emergency funding during the lockdown,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Reporting on Thursday chief executive Alison Rose, who joined in November 2019, has already said she would forgo any long-term incentive bonus shares for the year although the bank is preparing to share a bonus pool among its staff, according to reports.