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* HSBC, UBS, BNP Paribas, Swedbank all seen liftingdividends
* Dividends set to pick up, once regulatory fog clears from2014
* Top banks could pay out 32 bln euros in 2014 vs 21 bln in2012
* Santander and Spanish banks set to cut payouts
By Steve Slater and Sinead Cruise
LONDON, July 29 (Reuters) - A clutch of European banks areprimed to lift dividends to put them back on the radar ofyield-hungry investors after years spent using cash to repairbalance sheets.
HSBC, UBS, BNP Paribas,Standard Chartered, Swedbank and other banksin Switzerland, France and Sweden could lead the way back tobigger payouts.
But obscuring the route for banks with excess cash is astubborn regulatory fog, meaning investors in Europe may have towait until 2014 or later for more juicy rewards, later than anexpected pick-up in the United States.
"The problem ... is that they are waiting for the regulatorto say the final level of capital they need before they can beconfident enough to distribute," said Andrea Williams, Europeanequities manager at Royal London Asset Management.
Bank dividends have been a casualty of the financial crisis,since when regulators have proposed a wide array of capitalratio plans to protect taxpayers from future bank bailouts.
Payouts from 28 of Europe's top lenders peaked at 46.5billion euros in 2007, six times their level a decade earlier,but they slumped to 15 billion euros in 2008 before recoveringto 21 billion last year, Barclays analysts estimated.
The surge early in the century was driven by banks makingrecord profits and being allowed to run with thin capitalcushions; the drop after 2007 was inevitable as profits werewiped out or were retained to build capital.
Barclays analysts forecast payouts will rise to more than 32billion euros next year, up 50 percent from last year's leveland only behind the boom years of 2006 and 2007.
Many banks are well placed to ramp up payouts because theyare generating cash, keeping loan growth limited given mutedeconomic growth and are in no mood for acquisitions, accordingto analysts, investors and the banks themselves.
Royal London's Williams said Nordic banks like Handelsbanken and Swedbank should be able to bump up dividends whenclarity emerges, although banks elsewhere may face restrictionsuntil recovery picks up and regulators may limit payouts untilbanks commit more to lending to small and medium sizedbusinesses, for example.
SPANISH BANKS STILL PAYING
HSBC's annual dividend is forecast to rise to 55 cents pershare for 2014 and BNP Paribas' will increase to 1.99 euro, bothup about a third from last year, and UBS's should quadruple to0.66 Swiss francs, according to Thomson Reuters data.
In a world of low interest rates, the sector could return tofavour with investors on the hunt for good, sustainable yields.
Income investors relied on financial firms for 18-26 percentof all dividends in the dozen years up to 2008, but that saggedto near 15 percent in recent years, according to Citi research.
Yields would rise to over 6 percent at Swedbank, to about 5percent at HSBC and Standard Chartered and to near 4 percent atBNP Paribas, Societe Generale, UBS, Handelsbanken andNordea, based on expected 2014 dividends.
But not all banks will be able to join the party.
Spain's Santander, which ranks behind only HSBC inhow much is dished out by Europe's banks each year, is expectedto have to cut its payout, after barely trimming its dividendduring the crisis and recession, while most of its rivals took asharp knife to what they paid.
Its shares currently yield 11 percent but the dividendfutures market is pricing in a 60 percent cut to its 2014 awardand also a 25 percent cut at BBVA, said Jad Comair, founder ofMelanion Capital, a Paris-based investment manager focusing ondividend futures.
Santander has paid out 16 billion euros over the past threeyears, although more than 80 percent of its recent dividendshave been in shares, which means the bank does not use up cash,but does dilute earnings per share.
Other Spanish lenders are also expected to slash what theydistribute after the Bank of Spain last month fired a warningshot and told banks to limit cash dividends to a quarter ofprofits and make scrip dividends at sustainable levels.
Banks are being cautious about the timing of any increasesin case the regulatory landscape shifts, but several have madethe roadmap clear.
HSBC Chief Executive Stuart Gulliver said in May he istargeting a payout ratio of 40-60 percent, making clear he hasbroken from the past when his bank typically spent excess cashon acquisitions.
"This is an important marker to put down. We're quiteclearly signalling that the mix of the appropriate balance we'renudging towards (is) dividend growth," Gulliver said.
UBS has said it is aiming for a payout ratio of 50 percentonce it hits its capital targets.
Swedbank said it wants to pay out 75 percent of its annualprofits once it has satisfied the capital demands of regulators.
Lloyds Banking Group has not paid a dividend sincebeing bailed out in 2008, but is expected to next week set out apath to restart payments next year.
For a bank that was long one of Britain's best dividendpayers it would be a symbolic step in its revival and help thegovernment's plan to sell its 20 billion pound stake.
It should be able to pay a 4 pence dividend by 2015,analysts estimate, offering a 6 percent yield.
Payout ratios - or how much a company pays in dividend as ashare of profits - could rise significantly across the industryonce the regulatory landscape becomes more settled.
Mike Harrison, analyst at Barclays, estimated banks' payoutratios have averaged about 40 percent over the last 15-20 years,but that could increase to near 60 percent over the medium term,similar to that offered by utilities.
"If opportunities to grow aren't there, it's realistic tothink the payout ratios for banks go up. But it's contingent onregulations, and banks being happy with the rules of the road,"he said.
