Britain’s taxpayer-bailed-out banks today reassured the City that they will not need to raise fresh capital despite the Bank of England recently saying that the UK banking sector had a £25 billion capital shortfall.
The Bank’s new supervisory arm the Prudential Regulatory Authority has been poring over banks’ balance sheets and their ability to strengthen them. Today’s announcements from Lloyds Banking Group and Royal Bank of Scotland indicate that the PRA has given those plans the green light.
That is crucial to the Government’s plans to start selling off the taxpayers’ 39 per cent stake in Lloyds and 82 per cent stake in RBS potentially before the next election.
Lloyds shares rose 1p to 62.6p, which is above the 61.2p the Treasury has set as its break-even level on the taxpayers’ £20 billion bailout. RBS shares moved up 3.8p to 346p, still well short of the average 500p a share paid in its £45 billion rescue.
When the Bank of England’s Financial Policy Committee declared that the banking industry has a £25 billion shortfall, it was widely believed that some £9 billion of this applied to Lloyds and RBS. The FPC said it thought banks had plans in place to plug around half the £25 billion hole.
Neither RBS or Lloyds would confirm the figure agreed with the PRA for their capital needs, although analysts have previously estimated them at £6 billion and £3 billion respectively.
The PRA said: “The PRA has set out the capital requirements for Lloyds Banking Group and Royal Bank of Scotland. The two banks have advanced their plans to a position where disclosure is appropriate.”
Lloyds said: “The group expects to meet its additional capital requirements through its strongly capital generative core business, continued progress in executing the Group’s customer focused strategy and further capital accretive non-core asset disposals.” Crucially it added: “These additional capital requirements are expected to be met without recourse to further equity issuance or the utilisation of additional contingent capital securities.”
RBS said it would continue with the plans to improve its balance — details of which it outlined with its results last month.
It admitted that this could take longer than just this year and, although it added that it did not need to issue contingent capital notes, it reserved the right to do so.
Stephen Hester, chief executive of RBS, said: “We are pleased with RBS’s progress and momentum towards completing RBS’s return to full financial health.
“Our balance sheet has been transformed and our core business has plentiful surplus funding to support continued growth in lending.”
Lloyds said that it expected its core tier one capital ratio to be above 9% by the end of this year and above 10 per cent by the end of 2014.
Lloyds has already sold a 20 per cent stake in wealth manager St James Place and is considering a sale of Scottish Widows. It is also planning to float 631 TSB branches next year.
RBS has said it will sell a 25 per cent stake in its US retail and commercial bank Citizens next year.