Royal Bank of Scotland among banking shares hit as axe taken to investor payouts

Shares in Royal Bank of Scotland and Lloyds Banking Group came under pressure after Britain’s biggest lenders became the latest businesses to scrap billions of pounds in dividends amid the coronavirus crisis.

Edinburgh-headquartered Royal Bank of Scotland is one of the big banks agreeing to the measures.

Bank of Scotland owner Lloyds, RBS, HSBC, Barclays and Standard Chartered saw their share prices hit in trading on the London Stock Exchange.

The banks, also including Nationwide and Santander, said that they would not be returning money to shareholders via dividends, or buying back their own shares, until the end of the year.

The move comes after a request from the Bank of England’s Prudential Regulation Authority (PRA) that they suspend all plans to return money to shareholders. The banks will also cancel all outstanding dividends from last year.

RBS said it remained committed to capital returns and would continue to review the situation and look to resume payments to ordinary shareholders “in due course”.

Chief executive Alison Rose said: “RBS has a robust capital and liquidity position and we are focused on ensuring we support our customers and help them to navigate the immediate and longer-term challenges they are facing as a result of Covid-19.

“As we continue to build a purpose led bank we are committed to balancing the needs of all our stakeholders. Helping people, families and businesses who need our support is the right thing to do at this time of significant uncertainty.”

The PRA said it “welcomes” the decisions of all the UK’s biggest banks to suspend dividends and share buybacks until the end of 2020, and cancel any outstanding payments.

Britain’s banks have enough capital to weather severe recessions in both the UK and globally, as markets brace for a potentially huge downturn, the PRA said.

Banks are not likely to need the extra money they save from scrapping dividends, the PRA added, but the extra headroom will allow them to support the economy this year. It also said it expects banks not to pay any cash bonuses to their top members of staff.

Barclays shareholders were expected to be paid £1.03 billion on Friday, Lloyds shareholders would have pocketed £1.58bn, while RBS had expected to pay its shareholders a total of £968 million.

Richard Hunter, head of markets at Interactive Investor, said: “The announcement that banks will be suspending existing and future dividends and share buybacks ticks the boxes of moral duty and an additional capacity to lend, but from an investment perspective it removes a core plank of the case for buying bank shares.

“The current yield of the UK banks, soon to evaporate, is testament to the fact that some are core portfolio holdings. From a technical perspective, it also begs the question of how or whether these share prices will be compensated for the previous ex-divi markdowns.”