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The Markets
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The Markets
by Proactive
Proactive UK has moved.
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The Markets
by Proactive
Proactive UK has moved.
Small-cap coverage continues on .com
Go to Proactive UK

Banks

Lloyds Bank and Barclays to get big extra boost from pension surpluses

Recent improvements to British banks’ pension funds will mean significantly higher shareholder returns over the next four years, according to RBC Capital Markets.

Almost all major UK banks are fully financed for their defined benefit schemes, with Lloyds Banking Group PLC (LSE:LLOY) at 97% the only main bank with a deficit, the Canadian bank estimates.

“Over the last 5yrs, FTSE 100 aggregated DB pension scheme funding has moved from a £25bln deficit to a surplus of £115bln,” RBC said.

The change in solvency was driven by increased contributions and better UK bond yields as well as life expectancy falling by 13 months.

The surplus means RBC has increased its forecast for the share buyback schemes of Barclays PLC (LSE:BARC), Lloyds and NatWest Group PLC (LSE:NWG) by an average of 46% for 2023.

In 2024, the analysts have improved their share buyback guidance by 150% for Lloyds and 50% for Barclays.

On average RBC's forecast total yield for the banks is now 12.1%, compared to the 10.3% consensus.

Capital requirements are expected to decrease for the banks in the medium term, it adds, mirroring the 50 basis point reduction in 2021 for Virgin Money UK PLC (LSE:VMUK) after reducing pension risks.

In the long term, the analysts said: “If UK banks are left with residual surpluses this could lead to one-off uplifts to CET1 [financial resilience] ratios.”

RBC has increased its target price for Barclays 2% to 205p and Lloyds 3% to 70p. NatWest's target remained 370p.

Lloyds shares currently trade at 53p whilst Barclays is at 187p and NatWest at 306p.

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