UK banks are not investible after lenders were forced to scrap dividends by regulators to see them through the coronavirus crisis, Royal Bank of Scotland Chairman Howard Davies has said.
Davies told a City & Financial webinar today that the Bank of England need to lift curbs on dividend payouts by the autumn, adding that banks could not suspend payouts to investors indefinitely.
He said: “It’s probably fair to say the banking sector is not investible because when people try to do the models about what banks are worth they can’t plug in any numbers for cash out.”
Lenders have lent more than £40 billion of state-backed funds to struggling businesses during the crisis, but are bracing for an expected wave of defaults in the coming months.
"We can see clouds gathering on the horizon, but it hasn't yet started to pour down with rain, but I think we know that it's going to, and that's going to be a very difficult period for us," Davies added.
Meanwhile Anne Boden, chief executive of digital bank Starling said banks would need government support in handling unpaid state-backed business loans in the coming months.
Banks shares were all down this morning. RBS fell 3.1p at 121.9p, Lloyds was off 1p at 30.9p, Standard Chartered was down 13.2p at 429p and HSBC sank 6.1p at 383p.
RBS's stock has fallen by around half this year, wiping 15 billion pounds from its market value, while rival Lloyds shares are also down around 50%. The FTSE 100 as a whole is down 18% in the year to date.
RBS was rescued by the British government in 2008 and, despite plans to sell off the stake, it still owns 62% of the bank.
The comments come after back in June the Bank of England told financial institutions to suspend dividend payments in the wake of the coronavirus crisis.
The Bank said financial institutions must get permission before paying a dividend, with a clear hint that such permission would be denied for the rest of this year at least.
The move caught many in the City by surprise and hurt an already ailing sector.
Bank Governor Andrew Bailey has also told the big lenders to up their preparation for a no-deal Brexit amid growing signs of deadlock between the UK government and Brussels.