LONDON MARKET PRE-OPEN: UK Banks Scrap Dividends And Buybacks In 2020

(Alliance News) - Stocks in London are set to pull back on Wednesday after a good week for the market thus far, with investors digesting mixed economic data out of Asia overnight.

In early UK company news, blue-chip banks have suspended dividend and share buybacks in 2020 at the request of the regulator due to Covid-19, while Auto Trader plans an equity raise to strengthen its balance sheet.

IG says futures indicate the FTSE 100 index of large-caps to open 209.36 points lower at 5,462.60 on Wednesday. The FTSE 100 index closed up 108.22 points, or 2.0%, at 5,671.96 on Tuesday.

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 4.5%. In China, the Shanghai Composite is down 0.5%, while the Hang Seng index in Hong Kong is down 2.4%.

Released overnight, China returned to broadly stable manufacturing activity during March, survey results from Caixin showed, after deteriorating at the quickest pace in February.

The Chinese headline seasonally adjusted purchasing managers' index rose to 50.1 in March from a record low of 40.3 in February. This marked a strong improvement from the previous month when the nation imposed strict measures to stem the spread of Covid-19.

Any score above 50 represents expansion, while one below contraction.

Looking ahead, business confidence regarding the one-year outlook for output held close to February's five-year high, with many firms in China optimistic that demand will pick up once the pandemic situation improves.

In Japan, however, the manufacturing sector fell further into contraction in March, to a nine-year low.

The Jibun Bank Japan manufacturing purchasing managers' index fell to 44.8 in March from 47.8 in February. This was its lowest mark since April 2011, which was in the immediate aftermath of the tsunami that struck the island that year.

The main drags on the PMI reading March were a fall in new orders and output, with the virus outbreak leading to the sharpest decline in demand for Japanese goods for almost nine years.

Against the yen, the dollar was quoted at JPY107.56 early Wednesday versus JPY107.63 late Tuesday. 

Sterling was quoted at USD1.2389 early Wednesday, lower than USD1.2435 at the London equities close on Tuesday. The euro traded at USD1.1027, up from USD1.0996.

Gold was quoted at USD1,583.35 an ounce early Wednesday, lower than USD1,609.09 on Tuesday. Brent oil was trading at USD25.76 a barrel early Wednesday, slipping against USD26.61 late Tuesday.

In the US on Tuesday, Wall Street ended in the red, with the Dow Jones Industrial Average ending down 1.8%, the S&P 500 down 1.6% and Nasdaq Composite down 1.0%.

Emergency field hospitals were readied in New York's Central Park and at the home of the US Open tennis tournament as the number of American deaths from the coronavirus pandemic surged past 4,000 – higher than the toll in China.

The pandemic has killed more than 1,700 New Yorkers and US President Donald Trump, a native of the city, warned in Washington of "a very, very painful two weeks" to come for the entire country.

Declared coronavirus cases across the US surged to 189,510 early Wednesday, according to a running tally by Johns Hopkins University, with 4,076 deaths.

In the economic calendar for Wednesday, there are manufacturing PMIs from Germany, the eurozone and the UK at 0855 BST, 0900 BST and 0930 BST respectively. Eurozone unemployment is at 1000 BST.

In the afternoon is US ADP employment change, at 1315 BST, a precursor to Friday's monthly jobs report. The US manufacturing PMI from IHS Markit is at 1445 BST and the ISM PMI at 1500 BST.

"How many job losses are we talking about here as a warm up for payrolls tomorrow? The market says -150K...is that too optimistic given the surge in initial claims already seen?" questioned Rabobank.

Meanwhile, Britain's biggest banks have become the latest to scrap billions of pounds in dividends, as businesses scramble to save money by stopping payments to shareholders amid the coronavirus outbreak.

Barclays, Lloyds Banking, HSBC, Royal Bank of Scotland and Standard Chartered all confirmed on Wednesday they have suspended dividend and share buybacks in 2020. The banks will also not be paying final dividends for 2019.

It comes after a request from the Bank of England's Prudential Regulation Authority that they suspend all plans to return money to shareholders.

Alongside HSBC's dividend announcement, the bank said its performance was resilient in the first quarter against a backdrop of "difficult economic conditions".

"However, as a result of the global impacts of Covid-19, and its impact on interest rates, market levels and the forward economic outlook, we expect reported revenues to be impacted in insurance manufacturing, and credit and funding valuation adjustments in Global Banking & Markets, alongside higher Expected Credit Losses," the China-focused lender said.

Elsewhere in London early Wednesday, Auto Trader said it will embark on an equity raise to strengthen its balance sheet "through this period of uncertainty".

Action has already been taken to remove the majority of discretionary spending, including marketing, the car seller said, and the company's balance sheet is "strong".

At the end of February, Auto Trader said it had drawings of GBP289 million on its GBP400 million revolving credit facility, with a net debt to Ebitda ratio of 1.1 times, "well below" the covenant level of 3.5 times.

To further bolster the balance sheet, Auto Trader intends to conduct a placing of up to 46.5 million shares, representing around 5% of its issued share capital. The placing will be conducted via an accelerated bookbuild.

On Tuesday's closing price of 439.10 pence, the placing would be worth up to GBP204.0 million.

QinetiQ said it has continued to perform in line with expectations, but wants to "adopt a prudent course of action" and postpone a decision on a full-year dividend due to Covid-19.

The defence firm said that following on from a strong first half it continued to perform in line with forecasts during the remainder of the financial year, which ended on Tuesday, despite Covid-19.

"With a strong balance sheet and order backlog of nearly GBP3bn we enter FY21 from a position of strength, however we are realistic that restrictions imposed by governments internationally to counter the spread of Covid-19 will have an impact on revenues," said QinetiQ.

The firm has decided to postpone a decision on proposing a final dividend until later in the year, when there is greater clarity.

Estate agent Savills has withdrawn proposed dividends in order to "retain sufficient cash reserves".

In March, the firm said it intended to pay a final dividend of 12.05p and a supplemental interim dividend for 15.0p per share for 2019.

"Notwithstanding the group's strong balance sheet, in view of the current uncertainty over the impact of Covid-19 on global real estate market activity in the coming months, Savills is withdrawing these previously announced proposed dividends in order to retain sufficient cash reserves to mitigate the effect," Savills said.

Instead, the board will consider an "enhanced" interim dividend "on or around the revised date of the AGM", which has been pushed back to June 25. If declared, it will take the place of both the proposed ordinary and supplemental interim dividends.

"The quantum will be based on the group's performance in 2019 and the first half of 2020. It will also be dependent upon the Board's then assessment of the likely duration of continued market disruption as a result of Covid-19 and the level of retained cash reserves then deemed prudent," the FTSE 250 constituent said.

By Lucy Heming; lucyheming@alliancenews.com

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