LONDON A clutch of European banks are primed to lift dividends to put them back on the radar of yield-hungry investors after years spent using cash to repair balance sheets.
HSBC, UBS, BNP Paribas, Standard Chartered, Swedbank and other banks in Switzerland, France and Sweden could lead the way back to bigger payouts.
But obscuring the route for banks with excess cash is a stubborn regulatory fog, meaning investors in Europe may have to wait until 2014 or later for more juicy rewards, later than an expected pick-up in the United States.
"The problem ... is that they are waiting for the regulator to say the final level of capital they need before they can be confident enough to distribute," said Andrea Williams, European equities manager at Royal London Asset Management.
Bank dividends have been a casualty of the financial crisis, since when regulators have proposed a wide array of capital ratio plans to protect taxpayers from future bank bailouts.
Payouts from 28 of Europe's top lenders peaked at 46.5 billion euros (40.14 billion pounds) in 2007, six times their level a decade earlier, but they slumped to 15 billion euros in 2008 before recovering to 21 billion last year, Barclays analysts estimated.
The surge early in the century was driven by banks making record profits and being allowed to run with thin capital cushions; the drop after 2007 was inevitable as profits were wiped out or were retained to build capital.
Barclays analysts forecast payouts will rise to more than 32 billion euros next year, up 50 percent from last year's level and only behind the boom years of 2006 and 2007.
Many banks are well placed to ramp up payouts because they are generating cash, keeping loan growth limited given muted economic growth and are in no mood for acquisitions, according to analysts, investors and the banks themselves.
Royal London's Williams said Nordic banks like Handelsbanken and Swedbank should be able to bump up dividends when clarity emerges, although banks elsewhere may face restrictions until recovery picks up and regulators may limit payouts until banks commit more to lending to small and medium sized businesses, for example.
SPANISH BANKS STILL PAYING
HSBC's annual dividend is forecast to rise to 55 cents per share for 2014 and BNP Paribas' will increase to 1.99 euro, both up about a third from last year, and UBS's should quadruple to 0.66 Swiss francs, according to Thomson Reuters data.
In a world of low interest rates, the sector could return to favour with investors on the hunt for good, sustainable yields.
Income investors relied on financial firms for 18-26 percent of all dividends in the dozen years up to 2008, but that sagged to near 15 percent in recent years, according to Citi research.
Yields would rise to over 6 percent at Swedbank, to about 5 percent at HSBC and Standard Chartered and to near 4 percent at BNP Paribas, Societe Generale, UBS, Handelsbanken and Nordea, based on expected 2014 dividends.
But not all banks will be able to join the party.
Spain's Santander, which ranks behind only HSBC in how much is dished out by Europe's banks each year, is expected to have to cut its payout, after barely trimming its dividend during the crisis and recession, while most of its rivals took a sharp knife to what they paid.
Its shares currently yield 11 percent but the dividend futures market is pricing in a 60 percent cut to its 2014 award and also a 25 percent cut at BBVA, said Jad Comair, founder of Melanion Capital, a Paris-based investment manager focusing on dividend futures.
Santander has paid out 16 billion euros over the past three years, although more than 80 percent of its recent dividends have been in shares, which means the bank does not use up cash, but does dilute earnings per share.
Other Spanish lenders are also expected to slash what they distribute after the Bank of Spain last month fired a warning shot and told banks to limit cash dividends to a quarter of profits and make scrip dividends at sustainable levels.
Banks are being cautious about the timing of any increases in case the regulatory landscape shifts, but several have made the roadmap clear.
HSBC Chief Executive Stuart Gulliver said in May he is targeting a payout ratio of 40-60 percent, making clear he has broken from the past when his bank typically spent excess cash on acquisitions.
"This is an important marker to put down. We're quite clearly signalling that the mix of the appropriate balance we're nudging towards (is) dividend growth," Gulliver said.
UBS has said it is aiming for a payout ratio of 50 percent once it hits its capital targets.
Swedbank said it wants to pay out 75 percent of its annual profits once it has satisfied the capital demands of regulators.
Lloyds Banking Group has not paid a dividend since being bailed out in 2008, but is expected to next week set out a path to restart payments next year.
For a bank that was long one of Britain's best dividend payers it would be a symbolic step in its revival and help the government's plan to sell its 20 billion pound stake.
It should be able to pay a 4 pence dividend by 2015, analysts estimate, offering a 6 percent yield.
Payout ratios - or how much a company pays in dividend as a share of profits - could rise significantly across the industry once the regulatory landscape becomes more settled.
Mike Harrison, analyst at Barclays, estimated banks' payout ratios have averaged about 40 percent over the last 15-20 years, but that could increase to near 60 percent over the medium term, similar to that offered by utilities.
"If opportunities to grow aren't there, it's realistic to think the payout ratios for banks go up. But it's contingent on regulations, and banks being happy with the rules of the road," he said.
(Additional reporting by Sarah White and Toni Vorobyova; Editing by David Cowell)