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British banks await stress-test trigger for shareholder payouts

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By Huw Jones and Lawrence White

LONDON (Reuters) – Britain’s bank bosses are hoping for the green light to return more capital to long-suffering investors when the Bank of England publishes results next week from its annual stress test of leading lenders.

A decade after the financial crisis that triggered taxpayer-funded bank bailouts, the central bank has said repeatedly that they now hold enough capital to withstand extreme theoretical shocks such as Britain crashing out of the European Union next March without a deal.

The Bank of England has acknowledged that there was no need, therefore, to make the tests any tougher than last year, raising hopes of positive outcomes when the numbers are delivered at 0700 GMT on Nov. 28.

Barclays <BARC.L>, Lloyds <LLOY.L> and Royal Bank of Scotland (RBS)<RBS.L> have all signalled that they plan to ramp up dividend payments and share buybacks as a means of returning excess capital to investors hit by plunging share prices, caused by fears over Britain’s exit from the European Union and weaker than hoped for revenue growth.

Lloyds could return as much as 12 billion pounds through dividends and buybacks over the next three years, analysts said, while RBS could pay out as much as 7 billion pounds over the same period.

RBS Chief Executive Ross McEwan has indicated that the bank is considering special dividends and buybacks to return more capital to shareholders but says a clean bill of health from the central bank is a prerequisite.

“We are considering all options; we’ve got to get through a stress test beginning of December,” McEwan said last month.

Shares in Standard Chartered <STAN.L> rose briefly on Thursday morning after media reports said that it, too, is contemplating buybacks.


HSBC <HSBA.L>, Nationwide Building Society and Santander UK <SAN.MC> are the other lenders being scrutinised on their ability to withstand deep simultaneous recessions in Britain and global economies, as well as a slump in asset prices.

The lenders also face a separate assessment of the impact from potential misconduct fines.

Of those under the microscope, Barclays and Lloyds are under particular scrutiny after faring worst in this year’s EU health check of 48 lenders from across the bloc. Barclays struggled to make it through the Bank of England’s test last year.

Rob Smith, a partner at consultants KPMG, said that all seven will clear the hurdles set by the Bank of England, though some will feel the impact of a new accounting rule that forces lenders to make earlier provisions for souring loans.

Even if, as expected, Britain’s biggest banks perform favourably in the tests, lingering anxiety over the economic impact of Brexit could dampen expectations of generous capital returns in the near term.

“I don’t see the stress tests as necessarily giving the green or even amber light for dividends,” said Julian van Kan, head of financial institutions coverage at MUFG <8306.T> in London.

“While we still have the outcome of Brexit looming no bank will be too ambitious in returning capital to shareholders.”

Analysts will also look at whether the central bank signals any intention to mirror moves in the United States to ease back on stress tests.

For a graphic on British banks’ share price declines, see –

(Editing by David Goodman)

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