London Markets: British banks get good news as pandemic-era curbs on dividends and share buybacks are ended

The decision to end the restrictions was made after stress testing showed that the banking sector was strong enough to handle any more economic shocks from the COVID-19 pandemic.

“Banks remain well capitalized and resilient to outcomes for the economy,” said the Prudential Regulation Authority, the bank regulator within the U.K.’s monetary authority. “The extraordinary guardrails…are no longer necessary and have been removed with immediate effect.”

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Danni Hewson, an analyst at AJ Bell, said that “the relaxation of these restrictions is also an acknowledgment that the sector is in pretty solid financial shape and marks an interesting contrast with the European Central Bank which signaled caution on a quick return to big dividends in the Eurozone.”

The analyst noted that the news may feed expectations that British banks will sanction “super-sized shareholder returns” fed by the release of excess capital built up over the pandemic, as has been the case with major American banks.

“We’ll find out very soon just how generous U.K. banks are prepared to be, with first-half results season commencing at the end of July,” Hewson said. “The guardrails may have been removed, but the Bank of England will be expecting companies to act responsibly.”

The bank stocks met a mixed day of trading in London, where the FTSE 100, the index of the U.K.’s top stocks by market capitalization, was holding steady around flat, slightly ahead of peers across Europe.

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“After enjoying a recovery through the course of the day on Monday, the FTSE 100 started Tuesday in decent form after last night’s confirmation that England’s COVID restrictions will be lifted on 19 July,” said Hewson.

“Sentiment is also boosted by the removal of the remaining restrictions on U.K. banks’ dividends, booming British retail sales and better than expected export data from China,” she added.

The British Retail Consortium, a trade association, said that the second quarter of 2021 saw the fastest three-month growth of retail sales on record amid the gradual unlocking of the U.K. economy. Sales increased more than 13% year-over-year in June alone, the BRC said. Upbeat data had a muted impact on retailers, with shares in Tesco
TSCO,
+0.47%
and Next
NXT,

among the risers, though Sainsbury
SBRY,
-0.32%,
Marks & Spencer
MKS,
+0.37%,
and Primark owner Associated British Foods
ABF,
-0.90%
fell.

In China, export growth rose at an unexpected pace in June, rising more than 32% year-over-year to outpace expectations of 23%. That boosted metal prices, with iron-ore futures for August up nearly 1%, steel futures up 0.4%, and gold prices up 0.2%, helping London-listed mining stocks to rise. Shares in metals giants Fresnillo
FRES,
+1.77%,
Anglo American
AAL,
+0.47%,
Rio Tinto
RIO,
-0.05%,
and Polymetal International
POLY,
+0.48%
all climbed.