UK banks get hiked ahead of sector’s dividend ‘Freedom Day’

UK banks get hiked ahead of sector's dividend 'Freedom Day'

Some analysts think banks will wait until the year-end to declare special dividends When will banks start to pay out? Dividend forecasts and price targets for several FTSE 350 banks have been hiked by Goldman Sachs , UBS and other analysts ahead of what should be an eventful few weeks for the sector.

The Bank of England’s Prudential Regulation Authority is expected to lift its cap on bank dividends next week, with the European Central Bank doing the same the week after, opening the way for the sector’s own ‘Freedom Day’ to make payouts to shareholders in the third and fourth quarters respectively.

“We expect the PRA to eliminate dividend curbs on 13 July, paving the way for significant capital returns,” said UBS after upgrading earnings per share estimates for UK banks under its coverage by around 5%, largely driven by lower loan loss predictions.

With the banking sector’s earnings season coming up at the end of July, several brokers were rejigging their forecasts and share price targets.

UBS nudged up its price targets for Barclays PLC ( LON:BARC ) to 210p from 200p, Lloyds Banking Group PLC ( LON:LLOY ) to 54p from 51p, and NatWest Group PLC ( LON:NWG ) to 214p from 205p, but cut Standard Chartered PLC ( LON:STAN ) to 490p from 530p.

UBS said Barclays PLC ( LON:BARC ) remained its ‘top pick’ among the big lenders and Virgin Money UK PLC ( LON:VMUK ) among the challenger banks.

Goldman Sachs, meanwhile, hiked its price target for NatWest to 315p from 310p and HSBC PLC ( LON:HSBA ) to 600p from 585p.

After a new analysis of capital levels, Citigroup suggested mid-caps OSB Group PLC ( LON:OSB ) and Close Brothers Group ( LON:CBG ) have the potential to increase investor pay-outs.

For Berenberg, Barclays was the highlight, with strengthening economic outlook continues to creating more favourable conditions for the blue-eagle bank both in the UK and the US, with its investment bank arm appearing to be gaining further market share and potential for further clarity from management over cost reduction plans. Growing piles of excess capital

Second-quarter results are likely to show strength in earnings driven by trading income and loan losses, the UBS analysts said, expecting confirmation of “the start of a strong recovery in activity levels”.

Stabilising credit card balances and strong growth in vehicle finance should be a net positive and, while mortgage spreads are under pressure […]

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