Bonuses and dividends in the spotlight as UK bank reporting season gets going

Bonuses and shareholder dividend payouts will be in sharp focus when the bank reporting season gets into full swing next week with figures due from Barclays and NatWest Group.

Speculation is mounting over the payouts the major players will hand to bosses, staff and investors as they risk stoking controversy against a backdrop of economic carnage caused by the pandemic.

Lenders last year scrapped dividends after pressure from the Bank of England.

But the Prudential Regulation Authority (PRA) recently allowed lenders to resume paying divis, albeit on a limited basis, and all eyes are now on what the banks will announce alongside their full-year results.

Barclays kicks off proceedings on Thursday, when it is expected to announce underlying pre-tax profits, with charges and litigation costs stripped out, tumbling 55% to £2.8 billion for 2020 due to mammoth charges set aside for loans turned sour.

Reports suggest boss Jes Staley is still in line for a bonus – but probably a fraction of the £2 million maximum for the annual award and far less than the £3.1 million he landed in bonuses and long-term share incentives for 2019.

He joined counterpart bosses in announcing a cut to his fixed pay at the height of the crisis last year, but declined to rule out bonuses for his employees at third quarter results in October.

State-backed giant NatWest, which reports on Friday, is understood to be planning to share out a bonus pool for staff, but the smallest since its Government bailout more than 12 years ago.

The group – formerly Royal Bank of Scotland until a rebrand last year – is said to be proposing a bonus pot of around £200 million for employees, down sharply on the £304 million it handed out in 2019.

Chief executive Alison Rose, who took the reins in November 2019, has already said she would forgo any long-term incentive bonus shares – worth a potential £1.9 million – for 2020.

HSBC boss Noel Quinn and Lloyds Banking Group chief executive Antonio Horta-Osorio have likewise waived any payouts for last year.

Lloyds said at the end of 2020 that all staff bonuses would be scrapped due to the pressure on profits in a sign of the woes faced by retail lenders.

Barclays set aside an eye-watering £4.3 billion for expected loan losses in the first nine months of 2020 as it braced for a slew of households and businesses defaulting on their repayments.

The bad debt charges sent its interim profits tumbling to £1.27 billion from £3 billion a year earlier.

But the Government’s furlough scheme and support measures have been helping cushion the blow and Barclays revealed a better than expected profit of £1.1 billion in the third quarter.

NatWest also beat gloomy third quarter expectations as it swung to a £355 million profit against predictions of a loss.

This came despite it putting by another £254 million for bad debts, putting it on track for a full-year hit below the £3.5 billion to £4.5 billion it previously predicted.

Most analysts expect NatWest to swing to a £418 million pre-tax operating loss for 2020 due to the loan loss charges, against earnings of £4.2 billion the year before.

Richard Hunter, head of markets at interactive investor, said the coronavirus vaccine developments have boosted the outlook for the economy and banks.

He said: “Should the rollout of the vaccine lead to a quicker than expected economic recovery, it could even result in provisions for bad debts being significantly lower than the ones the banks announced last year.”

But he warned: “Headwinds remain for the sector in light of historically low interest rates, which put severe downward pressure on margins.”