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As the UK announces a second lockdown that will imperil many high-street businesses the optimism of high-street banks in recent days sounds off-key. It may not be entirely discordant, though.

Lenders of all types have been chanting a similar refrain — the first wave of Covid-19 and the spring lockdowns did not wreak as much economic damage as prophesied. House prices have not fallen as expected. Unemployment was, on average, forecast to rise to near 10 per cent, according to Gary Greenwood of Shore Capital. It has not been nearly as bad. Nor have bad debts mounted, as had been feared, during the first wave of the pandemic. Provisions against loan losses were a fraction of second-quarter levels. Both NatWest and Lloyds say full-year bad debts will be at the bottom of the range.

The subtext is not subtle. “Allow us to resume paying dividends in February when we announce our results” is banks’ message to the Prudential Regulation Authority. The PRA intervened in April to stop banks shelling out cash to shareholders. It looked political, even heavy-handed to many. A dividend hiatus would have boosted banks’ common equity tier one capital by just a percentage point or two. Share prices in the sector cratered. Most banks’ shares still trade at close to half their net asset value.

Bank bosses argue that their balance sheets have plenty of cushioning. Capital ratios are far above regulatory requirements put in place after the bailouts during the 2009 financial crisis. The gist: We can lend to the consumers and businesses who need cash and absorb the loans that go wrong.

That message hasn’t changed in the past day or so, in spite of the new restrictions. The second lockdown will be less panicky than the first one. If the UK is still in lockdown, it won’t be a straightforward decision for the PRA when it reviews the dividend moratorium next month. But the most resilient banks with strong capital ratios could resume payouts — even if only tokens — without limiting lending.

Investors shouldn’t hope for bumper dividends, though. And any reprieve may be shortlived. The second lockdown has spurred further extensions to support measures for mortgage customers and other borrowers as well as the furlough scheme. That may push the pain out to next year only for it return with a vengeance. Today’s provisions are only a best guess about future defaults. As the investor watchdogs say, the past is no guide to the future, particularly in this pandemic. But if it was, the second lockdown may be better than regulators fear.

Howdens how to

Whether or not the kitchen is the heart of the home, the government has put itself close to the heart of kitchen-makers, writes Cat Rutter Pooley

Many retailers are being forced to shut once again. With Christmas trading around the corner, it could hardly come at a worse time for the high street. John Lewis makes 15 per cent of its sales in November, RBC analysts estimate, a month in which its stores will open for only four days. 

But government policy has put kitchen company Howden Joinery and peers serving the construction industry in a privileged position. They can continue serving the building trade. Howdens issued an upbeat update on Monday. 

Construction shares sold off when the first lockdown started. Howdens lost as much as 40 per cent of its market capitalisation between the end of last year and mid-March. Builders' merchant Travis Perkins shed 60 per cent. 

Both have bounced back. Travis Perkins has recovered almost half its share price loss. Howdens, down only five per cent for the year to date, has almost eliminated its earlier decline. Same-store sales since mid-June were up 10 per cent year-on-year, Howdens said on Monday. For the full year, sales are down less than 7 per cent. It could restart dividends in February. 

State support for the housing market through stamp duty savings has propped up property prices and sales. For cyclical stocks, the housebuilders haven’t held up badly. Order books are building. That has helped support the builders' merchants that serve them. 

But the bigger boost comes from consumer spending displaced from the temporarily defunct travel and leisure sectors. DIY sales have boomed. So have bigger home repair, maintenance and improvement projects. At Travis Perkins, some of the segments servicing larger commercial projects have struggled. Wickes and Toolstation have led the boom instead. For Howdens, kitchens are a goldilocks-size project.

Howdens also has a happy accident of timing to thank. It usually makes about 40 per cent of its profits during one four-week promotional period. This year the period was more prolonged, but it ended on Saturday. Limiting access to tradespeople during lockdown should have comparatively little impact. Builders can carry on fitting kitchens provided homeowners are happy for them to do so, and consumers want them ready for Christmas. That should shore up the wider sector. Who knows, the government might even let people use them to cook for family this festive season.

Banks: kate.burgess@ft.com
Howdens: cat.rutterpooley@ft.com


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