“U.K. banks including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY)may avoid the need to sell new shares to bolster their balance sheets after the Bank of Englandused more lenient rules than those advocated by European regulators.
Lenders were yesterday told they need to raise 25 billion pounds ($38 billion) of additional capital, of which they have already laid out plans to cover about half. By targeting a core Tier 1 capital ratio of 7 percent by the end of 2013, rather than the 10 percent by 2019 required by theBasel Committee on Banking Supervision, firms don’t need to raise as much. Government-owned RBS and Lloyds have already sold assets to help bolster their balance sheets.
“They’ve chosen a core Tier 1 ratio that’s quite generous,” said Gary Greenwood, an analyst at Shore Capital Ltd. in Liverpool,England. “The problem is they still need the banks to lend, and the U.K. government doesn’t want to put more money in. If these were all still shareholder-owned businesses they’d be told to have rights offers.”
Britain’s lenders have been selling units and detailing plans to bolster their businesses since the central bank said in November it was concerned they hadn’t fully recognized future loan losses and may be using inappropriate risk models to assess how much capital they hold. BOE Governor Mervyn King said the shortfall “is not an immediate threat to the banking system” and won’t require additional government investment in banks. RBS and Lloyds received a total of about 65.5 billion pounds of taxpayer aid during 2008 and 2009.
