London pre-open: Banks to feature early on

3rd Nov 2009 07:40

Expect an early 50-point slide as investors assess confirmation of dividend cuts and asset sales from Royal Bank of Scotland and a £21bn cash call from Lloyds Banking Group.RBS will not be allowed to pay dividends for the next two years and have to divest its insurance arm and a raft of other businesses to meet European rules after agreeing to join the UK government's asset protection (APS) scheme. To comply with EC State Aid requirements, RBS has agreed to divest the RBS branch network in England and Wales and the NatWest branches in Scotland and Direct SME customers across the UK.RBS Insurance, Global Merchant Services and RBS's interest in RBS Sempra Commodities, all of which occupy leading positions in their markets, are also to be sold, the bank said. RBS will also not pay investors any dividends or coupons on existing hybrid capital instruments for two years.Lloyds Banking Group today confirmed the City's worst kept secret that it will raise £21bn through a £13.5bn rights issue and £7.5bn swap of existing debt for contingent capital. The government will take up its rights, investing £5.7bn net of an underwriting fee to keep its stake in Lloyds at 43%. It will pay a £2.5bn break fee to avoid being tied into the APS. The EC also says it won't be able to pay some dividends on hybrid capital securities.On current trading, chief executive Eric Daniels said the group is delivering in line with guidance in all key areas of the business, but still expects to report a loss before tax for 2009, excluding the impact of the £11.2bn credit relating to negative goodwill. Legal & General said it has hit its 2009 net cash target three months early, with £461m net cash generated in the first three months of the year. Worldwide new business in the first nine months of 2008 was down 7% to £1,058m from £1,137m in the corresponding period of 2008.Aero engine manufacturer Rolls-Royce is still expecting underlying revenues to grow this year and profits to be of a similar level to 2008. In a trading statement covering the second half of the year, the company said trading activity across the group's operations remains consistent with expectations against a background of generally depressed global market conditions.Property firm Hammerson has seen a firming of UK property yields in the second half of the year as a modicum of confidence returns to markets. Demand for commercial property has increased in the UK and France since 1 July, albeit from a low base in the case of France, where transaction levels remain low in absolute terms.