Fund managers remain confident banks' capital buffers will ensure they sail through the coronavirus crisis relatively unscathed, after dividend cancellations rocked share prices on Wednesday.
The UK's largest lender said they would cancel final dividends for 2019, amid pressure from the Prudential Regulation Authority (PRA), as well as agreeing to put no money aside for payouts in 2020 and ruling out share buybacks. The move comes after US banks were forced to cancel share buyback plans.
The hit to both stock and fund investors adds up to more than £7.5bn, with the HSBC, Lloyds and Barclays having offered prospective yields of 9%, 10.5% and 9.6% respectively.
The announcement saw the share prices of banks across the sector fall to the bottom of the FTSE 100 leaderboard. HSBC was down 9.4% as at 2pm on Wednesday, while Barclays, Standard Chartered, Lloyds and RBS were 9.3%, 8.1%, 7.6% and 5.2% lower respectively.
But Jamie Ward, manager of the £56m TM CRUX UK Core fund, said the fall in share prices was "technically driven", rather than investors deciding the news was overly negative.
Ward noted that while a number of income funds would be owners of the banks, those funds would more likely be passive funds, rather than actives "because fund managers have been quite hesitant to own banks for quite a long period of time".
"However, the passive income funds, I suspect, will have had to hold a large portion of banks and I am sure a lot of these ETFs have now been forced to sell, and it is not really clear that there is a buyer there," Ward explained.
"You add that to an already-weak market and banks are going to be weak for a few days; but I think this is probably going to be an opportunity overall."
In a note to clients, Killik & Co said the news was "clearly disappointing for shareholders", but countered that it was "the correct decision given the uncertainty surrounding the depth and duration of the economic slowdown and the impact on the banking sector".
Banks are a favourite of investors, with platform interactive investor listing HSBC, Lloyds and Barclays as three of the most-bought equities by its clients in SIPPs during the current tax year to 31 March.
The move "ticks the boxes of moral duty and an additional capacity to lend, but from an investment perspective it removes a core plank of the case for buying bank shares", said interactive investor's head of markets Richard Hunter.