Member Info for tophat

"AB has not added comment to what he has previously said"

Andrew Bailey and three other members of the MPC gave evidence to the Treasury Select Committee yesterday and naturally the MPC decisions on rates and QE were raised. You can watch the session using the link given below.

The TSC oversees the BoE, MPC and FPC on behalf of Parliament, not the government. All senior appointments, including members of the MPC, have to be approved by the TSC and candidates have to appear before the committee and convince it of their independence before being approved. The four MPC members who appeared yesterday voted in three different ways at the November meeting which does suggest their independence.

https://parliamentlive.tv/event/index/dffc6856-a4ef-49c9-b825-e52ac02f4562

Prussell1963

On the subject of dividends, given the surplus capital that Aviva have announced that they are going to return to shareholders, the total ordinary dividend for 2021 will be at least as great as for 2020, i.e 27p per share. However given the company have already increased the interim dividend by 5% it is very likely that the final ordinary dividend, usually paid in May, will be at least 21p.

There would normally be three ways to distribute the £3.25bn of excess capital. Increase the ordinary dividend, pay special dividends, and/or have additional share buy backs. The company want sustainable dividends so a massive increase in the ordinary div is very unlikely! Given the constraints on buy backs, I can’t see that as a viable mechanism for returning that amount of capital in the given time frame. So It looks to me as if there will be one or more special dividends. I won’t speculate as to the quantity.

However as to your point of having a share consolidation linked to a special dividend I have to point out that neither a dividend, special or ordinary, nor a share consolidation adds any intrinsic value to a company or its shareholders. I can’t comment on Tesco but believe that they did the same as National Grid did a few years ago. There were a number of NG shareholders who, incorrectly, thought that they had been cheated out of something. The following was my response which, I hope, will avoid any such complaints on this AV board if there is a simultaneous consolidation.

“There seems to be much confusion about what happened so may I offer this very simple but totally unrealistic analogy which I hope will clarify matters.

Suppose there is a company with 1000 issued shares which pays off all its debts and its only asset is £1000 in a bank account. A shareholder with 100 shares has a holding worth £100.

Suppose now that the company returns £500 to shareholders. Now there is only £500 left in the bank but there are still 1000 shares so each share is now worth only 50p. However the shareholder with 100 shares which had a value of £100 now has 100 shares worth £50, however he also has £50 in cash so the total value is exactly the same.

Now suppose the company has a 1:2 consolidation at the same time as the cash payment. The shareholder who had 100 shares now has only 50 but as there as there are now only 500 in total each one is worth £1 so he still has £50 worth of shares plus the £50 in cash.

From memory National Grid paid out approx. £3bn to shareholders and cancelled the same value of shares. The overall net result should be zero.
For those wondering why a company would do this when it doesn’t affect the overall value it makes it easier for shareholders to make multi-year comparisons of the SP and other financial data because they don’t have to factor in the return of the cash in their calculations.”

onelongrunner

Many thanks I missed that.

onelongrunner

The table gives an indication of the impact of a rate rise on income, not profit. The amount of profit will depend on other factors such as how much of the increase is passed on to deposit savers.

No dividend was announced but $1.7bn were set aside during the quarter for future dividends

smithy88

Don’t expect any changes to the ring fencing rules just because we are out of the EU. The work done by the UK Treasury Select Committee influenced many regulators and the UK pushed for tighter rules than many countries wanted.

SD235

A limit order may not always be executed even though the target SP is reached. LGEN like all FTSE 100 shares is traded using the SETS system. The buy and sell orders are loaded into SETS and the system uses a strict sequence of rules to match the buys with the sells. Two of those rules are-

“At best” orders take precedence over “limit orders”
Where orders have the same priority the one which matches the highest volume of shares takes precedence.

For example suppose you place a buy order for 5,000 shares at a limit price of 279p and later I place a buy order for 6,000 shares “at best”. If sell order for 9,000 is entered with a limit price of 278p then my order will be executed and your order will remain unfulfilled. First the “at best” order takes precedence but even if that were not the case and both orders had the same priority my order would still get preference because it matches the greatest volume of shares.

In reality it is far more complicated as other factors can also influence the outcome.

The analysts latest consensus figures for Lloyds show a total ordinary dividend for 2021 of 1.99p plus an excess capital distribution of £935m.

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2021/q3/2021-lbg-q3-consensus.pdf

Brilltrader

For the 2020 financial year Aviva paid the following dividends on their ordinary shares-

24/09/2020 Interim div 6p per share
21/01/2021 Interim div 7p per share
14/05/2021 Final div 14p per share.

I hold Aviva shares in my ISA and also have some certificates from a long time ago.
Both my ISA and bank account were credited with the correct amounts on the dates given above.

If you received only two dividends then you need to ask you broker why.

Regards

William Chalmers, Lloyds CFO, gave an interview to the BofA conference on 21st September 2021.

On capital distributions he said

“We totally recognize the importance of capital returns to investors so… we see capital returns as essential… We put forward an interim dividend of .67p per share in the context of committing to a progressive and sustainable dividend path. It is very important to us that we are able to commit… to both of those two words i.e. progressive and sustainable…

When we look at surplus capital… we will look above and beyond the dividend at the end of the year as the board always does, at the capital position of the group, at the regulatory changes particularly the RWA increases which we expect in the course of January next year. We will look at the macro economic outlook and we will also look at… investments in the business providing that they are value adding and ultimately accretive to shareholders. We’ll look at all of these factors when we look at the capital position at year end and decide upon distributions above and beyond the dividend.

Two points. Just to reiterate the importance of capital distributions as a philosophy and secondly to say the timing of this i.e. at the year end is nothing unusual. As you know Lloyds has always looked at surplus capital distributions beyond the dividend at year end. This year is no different. We recognize what other banks have done for their own reasons but for us it is just business as usual.”

As we are back to interim and final dividends we'll have to wait for the year end as hardup said.

SHAPERITE

A quick calculation from the figures given in the half year results suggests that a 0.25% increase in rates would add approx £200m per year to Lloyds income. However to assess how that would impact the profitability you have to consider the proportion of any rate increase passed on to depositors. Also the large structural hedge which Lloyds has is an important factor. The full impact of the increase will take a number of years to take effect and I remember George Culmer, a previous finance director of Lloyds, saying that the spread of any rate rise would be weighted to years two and three after the rise.

nuri123a

The ECB restrictions on bank dividends don’t expire until 30th September 2021 so the fact that there was no specific announcement on dividends is no surprise. However the half-yearly financial report contains the following paragraph

“The increase of 0.8% is due to a profit after tax of € 0.3 billion (+0.5%) and RWA reductions (+0.6%) partially offset by foreseeable charges in respect of dividends (-0.3%) and a reduction in investment securities (-0.1%).”

This means that they have allocated approx. 180 million Euros during the half year for future dividends. By my reckoning that works out as approx. 6.6 cents per share.

longtimeinvestor

I totally agree that Lloyds could pay more than 2p but strongly suspect that they will stick with the formula.

Lloyds finished the half year with a CET1 ratio of 16.7% after allowing for the interim dividend. However the regulatory changes coming in the new year will reduce that by 1.2% to 15.5%. This needs to be reduced by another 0.3% down to 15.2% to take into account the acquisition of Embark. This leaves 170bps for shareholders.

Since the 0.67p dividend will use 37 bps of CET1 a reasonable estimate of what is available for shareholders is 170/37*0.67 which comes to approx. 3.08p per share.

I doubt that the board will want to pay a total ordinary dividend of more than 2p. Past experience has shown that they tend to be conservative with the ordinary dividend.

However it is reasonable to assume that there will be a capital build in the second half of the year unless there is a serious deterioration in conditions. So the board should have scope for specials and/or buybacks.

longtimeinvestor

Lloyds have a long history of the one third - two third split for ordinary dividends going back to before the the financial crisis.

2015 interim 0.75p, final 1.50p
2016 interim 0.85p, final 1.70p
2017 interim 1.00p, final 2.05p
2018 interim, 1.07p final 2.14p
2019 interim, 1.12p the final was never paid but recommended at 2.25p

Adjustments tend to be made with special dividends like those declared in 2015 and 2016, each of 0.5p.

Lloyds has abandoned its plan to pay ordinary dividends quarterly and has reverted to paying them half yearly. Historically this meant paying approximately one third as an interim and two thirds as a final. With an interim dividend of 0.67p it looks like they have already decided to pay a total ordinary dividend of approx 2p.

In the H1 analysts presentation this morning Jes Staley made a number of comments which show how the board and management feel on the balance between dividends and buybacks.

“The board and management are keenly focused on stock price”

“If we have shareholders who are willing to sell at less than book value then we are willing to buy it”

“We are directing towards a 6p dividend for the year… and we know that income flow, particularly for our retail investors, is particularly important. On the other side when you are trading at 50 to 60% of book value the economics just pushes you towards a buyback”

The results contain the following sentance which suggests a full year dividend of around 6p

Dividends will continue to be paid semi-annually, with the half year dividend expected to
represent, under normal circumstances, around one-third of the total dividend for the year.

Apologies to everyone for misleading you in my post on Thursday as I hadn’t realized that there had been a new analysts update released on 30th June.

The latest consensus estimates a full year ordinary dividend of 1.80p (up from 1.72p in the previous forecast) plus a £571million return of excess capital. However there is no split given between special dividend and buybacks.
The details along with the analysts predictions for 2022 and 2023 can be found on Lloyds website at

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2021/half-year/2021-lbg-hy-consensus.pdf

Faulkes

No they are professional analysts like Raul Sinha who works for JP Morgan and Joseph Dickerson at Jefferies. They run financial models of Lloyds so for example, if NIM changes from 248 to 250 they will be able to tell what effect that would have on revenue.

SUFCESSEX

I have been an investor in Lloyds for a long time having held through the lows in March 2009 when the SP was the equivalent of 16 or 18p today and I also took part in both capital raisings so I’m fully aware of Lloyds capacity to disappoint.

In the Retail Investor Update on May 24th 2021, Douglas Radcliffe, Group Director of Investor Relations, reaffirmed that the board intends to re-instate a progressive dividend policy and pay a 2021 ordinary dividend in excess of the 2020 dividend (0.57p). He also pointed out that the CET1 capital ratio of 16.7% was considerably in excess of both the regulatory amount of 11% and management target of 13.5%. The board are very aware of the need to return excess capital to shareholders and it is usual for them to announce their intentions to pay special dividends or buybacks at the year-end results. He saw no reason to think this year would be different. The board is conscious that there is a mix of income and value investors so I suspect a mix of special dividend and buybacks is likely.

Here is a quick estimate of the total excess capital available for shareholders which includes the 2.25p which was never paid. The 2020 dividend of 0.57p consumed 21 bps of CET1 capital and at the end of Q1 2021 Lloyds had 320 bps of CET1 above their management target. A reasonable estimate of the excess capital is therefore (320/21*0.57) which leads to the conclusion that there is about 8.69p per share of capital over target. This assumes that there has been no capital accretion during Q2 which is unlikely.

Not all of this will be available for shareholders as there are transitional capital requirements which are due to roll off and new weightings for RWA’s coming into effect in January 2022 which will impact capital. Also it is very unlikely that the board will want to release all of the excess capital in one year and they won’t want to upset the regulator. However there should be a healthy amount available for distribution one way or another.

The analysts current consensus is for a total 2021 ordinary dividend of 1.72p