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Market report: RBS warning on dividend curbs pushes banking shares lower

RBS
RBS

Bank shares slipped as the chairman of Royal Bank of Scotland called on the Bank of England to lift dividend curbs on lenders.

Sir Howard Davies said Threadneedle Street should remove the restriction by the autumn, in order to make banks “investable” once again.

Lenders were forced to ditch payouts and buybacks in March to shore up their finances in preparation for the impact of Covid-19.

Speaking on a City & Financial webinar, Sir Howard said: “It’s probably fair to say the banking sector is not investable because when people try to do the models about what banks are worth, they can’t plug in any numbers for cash out.”

His comments put lenders under further pressure on a poor day for the markets.

Lloyds Banking Group fell 0.8p to 31p, RBS dropped 3.2p to 121.9p, while Barclays closed down 2.2p at 115.7p. HSBC, which is also under pressure over its support for China’s controversial security law, fell 5.6p to 383.5p.

The drops left financials as one of the worst-performing FTSE 100 sectors as the blue-chip index slid 1.3pc.

A series of moderate falls for other heavyweights, such as drinks maker Diageo, pharma groups AstraZeneca and GlaxoSmithKline and London’s miners, added to pressure. Stock markets slipped across Europe, ending a week-long streak of gains on the pan-continental Stoxx 600.

News-driven individual moves were thin, with a typically light Friday reporting calendar, and Wall Street closed as Independence Day weekend got under way across the pond.

Markets Hub - Royal Bank of Scotland Group
Markets Hub - Royal Bank of Scotland Group

On the FTSE 250, which outperformed its blue-chip sibling but also lost ground, plastics manufacturer Essentra was the standout, climbing by 21.2p at 314.2p after noting a steady improvement in its performance despite the pandemic.

In a trading update, the business said its revenue trend had recovered from -17pc in April to an estimated -1pc in June.

Paul Forman, its chief executive, said: “We have seen an increasing monthly sales trend this quarter, and barring a major second wave to the pandemic, we expect this trend to continue in the third quarter.”

Jefferies’ Andy Douglas said the update offered a positive surprise, adding that the company’s improvement since April had been “very impressive”.

Shares in Rank Group were left little changed after the gambling company said its Mecca Bingo halls across England would reopen their doors from today in line with updated government guidance. It will initially open 35 venues in England, with a further 30 to open during July and August.

Its locations across Scotland and Wales will open “when permitted”.

It said operating profit for the year to the end of June was expected to be at the lower end of its previously provided £48m to £58m guidance range.

Shore Capital’s Greg Johnson said Rank should be able to break even on earnings before interest, taxation, depreciation and amortisation even with the income from its venues at half historic levels.

He added: “Combined with the strength of the balance sheet heading into the crisis, Rank appears very much in the post-Covid ‘survivor camp’.”