A potential windfall for Lloyds Banking Group (LSE:LLOY) shareholders and the £500 million sale of a Barclays (LSE:BARC) stake have put the UK’s underperforming bank sector in the spotlight this week.
Hopes for a bigger-than-expected return of capital in February’s annual results were boosted last night when Lloyds confirmed it had got back the entire £1.2 billion it lent to the Barclay family to finance ownership of the Telegraph and Spectator.
As this is much more than the £500 million at which it is thought to have valued the loan on its books, City analysts are now looking for a big writeback in the full-year figures.
According to this morning’s Times newspaper, Shore Capital analyst Gary Greenwood said this could mean a share buyback of £2.5 billion rather than £2 billion previously forecast. The developments may also lift pre-tax profits for the year by about 10%.
Lloyds shares rose 1.4% yesterday and are up by 6% in the past week, although they were in negative territory during today’s session and remain lower year-to-date.
Barclays shares fell following last night’s disclosure that its second-largest shareholder Qatar Holding had embarked on the sale of 361.7 million shares as it unwinds the position taken during the financial crisis in 2008.
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The disposal, which amounted to just under half the 5% interest Qatar’s wealth fund disclosed in January, left Barclays at 139.6p as the market digested the deluge of shares.
Qatar made its move even though Barclays chief executive C.S. Venkatakrishnan is due to use February's annual results to set out his capital allocation priorities and financial targets.
Shareholder distributions for this year stood at £1.2 billion by the end of October and represented a rise of over 30% against the first half of last year.
Like Lloyds, the shares have struggled for momentum and have spent most of this year stuck in a narrow range between 140p and 165p. The pressure intensified after disappointing third-quarter results included downgraded guidance on the UK net interest margin.
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About 60-70% of Barclays’ revenues are from investment banking, where fees have been squeezed by a shortage of dealmaking activity. Analysts expect the strategy review to focus on growth opportunities in US credit cards and in wealth management, as well as improved capital efficiency in order to maximise shareholder distributions.
UBS recently described Barclays as “the cheapest bank around” after highlighting a price target of 200p.
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