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Lloyds Banking Group PLC ADR LYG

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Bank of England Lifts Dividend Suspension; Return to Capital Framework Process in 2021

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

Regulators at the Bank of England have eased capital distribution restrictions for the large U.K. banks under our coverage, allowing for the resumption of dividends, albeit at a reduced rate. Under the new guidelines, banks can distribute up to the higher of 20 basis points of risk-weighted assets as of 2020 year-end or 25% of cumulative 2019 and 2020 profits. Based on our estimates, this translates to a maximum distributable amount for Barclays, Lloyds, and NatWest of about GBP 800 million, GBP 790 million, and GBP 560 million, respectively, and a slightly above 3% yield at current market capitalizations. Crucially, the banks have the capacity to pay the maximum allowed and more. Using pre-COVID-19 minimum capital requirements as a yardstick and excluding all COVID-related transitional arrangements, the U.K. banks have GBP 3 billion (Barclays), GBP 3.7 billion (Lloyds), and GBP 11.1 billion (NatWest) in excess capital on hand. In 2021, U.K. banks will return to the standard distribution process based on the Basel framework allowing for dividends if capital levels permit. We maintain our fair value estimates and moat ratings for all three U.K. banks.

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Company Profile

Business Description

Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking, and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards, and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management, and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset-management services.

25 Gresham Street
London, EC2V 7HN, United Kingdom
T +44 2076261500
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type
Employees 63,069