UK bank snaps up credit card business; Japan’s central bank upbeat on economy 8.01am GMT Back with the Lloyds deal to buy MBNA, and Shore Capital reckons the move could rule out any special dividend to shareholders. Analyst Gary Greenwood said: Although there is no change to guidance for a progressive ordinary dividend payment, this may colour management’s thinking towards special dividend payments for the current financial year as management may wish to retail additional capital. Current guidance is for the group to generate capital before dividends equivalent of around 160 basis points of risk weighted assets in the current financial year. This is equivalent to around 5p per share and compares to our current full year dividend forecast of 4p, which includes a 2.55p ordinary payment and 1.45p special. It is likely that the anticipated special dividend may therefore be missed or reduced in order to finance the deal, albeit we would expect further surplus capital to be generated in subsequent years. Overall, the anticipated financial performance and shareholder value creation that is expected to be generated by this transaction is impressive, in our view, and suggests a better use of capital than simply returning it to shareholders. That said, Lloyds will be broadly doubling up its exposure to credit cards at a particularly benign point in the bad debt cycle and ahead of a potential slow-down in the UK economy once the terms of the UK’s exit from the EU are reached. While there is some latitude in the financial metrics to absorb potentially higher impairments, the risk cannot be ignored. In addition, we see limited scope for organic growth given the high post transaction market share and attention such growth may attract from the competition authorities. 7.56am GMT Here’s more on the Bank of Japan’s more positive view of the country’s economy. Reuters reports: The Bank of Japan kept monetary policy steady and took a more upbeat view of the economy on Tuesday, reinforcing market expectations that its future policy direction could be an increase - not a cut - in interest rates. Reflecting a pick-up in emerging Asian demand and factory output, the central bank upgraded its language to signal its confidence that the economy is headed for a steady recovery. As widely expected, the BOJ kept unchanged its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent. Underscoring its optimism on the outlook, the central bank even revised up its view on private consumption - considered a soft spot for the Japanese economy, the world’s third largest. The market reaction to this move has generally been a stronger USD/JPY. Although the BOJ economic outlook is more upbeat, it isn’t enough to compete with the Fed and its rate-hiking cycle for 2017, which will continue to give the US dollar the yield advantage. Japanese stocks like it though, and the Nikkei is up 0.5% already, as a weaker currency, a brighter economic outlook and a low interest rate environment boost the Japanese corporate outlook. 7.24am GMT GOOD MORNING, AND WELCOME TO OUR ROLLING COVERAGE OF THE WORLD ECONOMY, THE FINANCIAL MARKETS, THE EUROZONE AND BUSINESS. On a quiet trading week in the run-up to Christmas, Lloyds Banking Group has just provided a bit of merger excitement. This shouldn’t have been a surprise to most people given recent yen weakness which has come as a welcome relief to Japanese policymakers, after several failed attempts this year to weaken the yen. Even so the yen still remains above the levels it was when the Bank of Japan first pushed rates into negative territory in January, and reinforcing the reality that the only way the yen is likely to weaken further is as a result of future US policy moves. Related: Moody's voices concern at 'material delay' in Greece debt relief talks Our European opening calls:$FTSE 7011 -0.08% $DAX 11414 -0.11% $CAC 4822 -0.01%$IBEX 9320 -0.17%$MIB 18889 -0.42% Continue reading...
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