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RBS, Barclays may not pay dividend until 2011

Britain's Royal Bank of Scotland Plc and Barclays Plc are unlikely to make dividend payments until 2011, according to an analyst at ING, who began coverage of the two banks with “sell” ratings.

“Falling returns and dividends...are our concerns at the other domestic UK banks,” analyst Andreas Mavrikakis said, while initiating coverage of Britain's top lender HBOS Plc, Lloyds TSB Group Plc and Europe's biggest bank HSBC Holdings Plc with “hold” ratings.

The key downside risks for the UK banks include the need to raise more capital in 2009 as impairments and writedowns exceed expectations, as well as a deterioration in wholesale funding after Treasury and central bank intervention, Mavrikakis said.

“RBS is vulnerable to a much more significant increase in corporate impairments than its peers as losses normalize from a low level,” Mavrikakis wrote in a November summary note to clients.

The analyst forecast an average return-on-equity of below 5% in 2009 to 2011 for RBS, likely caused by high ordinary and preference share dilution, a sharp rise in impairments and weak investment banking revenues.

Earlier on Tuesday, Edinburgh-based RBS, which has been hit hard by the credit crisis, said it expected economic slowdown, difficult financial markets and moves to reduce risk on its balance sheet to have an adverse effect on its fourth-quarter and full-year results.

RBS, which is taking Ł20 billion of emergency capital from the government, also said it wants to be in a position to resume paying dividends in 2010, which would require it to buy back Ł5 billion of government preference shares. (Reuters)