Lloyds could fail the Bank of England’s stress tests this Autumn and be banned from paying out a dividend this year, analysts at Macquarie warned yesterday.
The bank has hiked its capital ratios over the past year and so is not expected to be forced to issue any more bonds or shares to bolster its buffers.
But analysts believe regulators could use the tests to make Lloyds postpone its planned first payout to shareholders since the financial crash.
“Whilst its strong capital generation means that it is unlikely to be required to raise capital, we suspect that the restart of dividend payments will be delayed again,” said analyst Edward Firth.
The stress test takes the big banks’ finances and subjects them to a fictional scenario in which UK house prices dive by 35 per cent.
This is particularly tough on Lloyds, the UK’s largest mortgage lender.
The bank is thought to be confident it will pass the tests – although the test is based on the bank’s finances at the end of 2013, since then Lloyds has pushed its core tier one capital buffer up to 11.1 per cent.
That is stronger than most of its rivals and, and should give it enough room to stay above the 4.5 per cent limit even in the stressed scenario.
Lloyds wants to pay a dividend for 2014, and the landmark would represent a major stage in its recovery form the financial crash.
Analyst Ian Gordon from Investec believes if Lloyds progress cautiously it will be allowed to pay a dividend.
“My forecast is for a small token dividend of 1p for 2014, before building to a 50 per cent payout ratio two years out,” Gordon told City A.M.