independent

Thursday 17 April 2014

Lloyds and RBS need billions more capital, BoE says

UK regulators have given Royal Bank of Scotland – the parent of Ulster Bank – and Lloyds Banking Group until March to begin dealing with a black hole that Brooks Newmark, a Tory member of the Treasury Select Committee (TSC), suggested could be as large as £30bn.

Bank of England officials refused to quantify the capital shortfall in evidence to the TSC yesterday, but they confirmed it was substantial. Michael Cohrs, a member of the bank's Financial Policy Committee, said it was "a big number", while Andy Haldane, the bank's executive director for financial stability, agreed it was "material".

The warning came as regulators admitted that the government had overpaid when rescuing the banks in 2008 and that the taxpayer would never make as large a profit from the bailouts as the US, if at all.

Asked whether returns for the UK taxpayer might match the 15pc made in the US, Mr Cohrs said: "I don't think the taxpayer will get those returns."

Mervyn King, the bank's governor, said: "The sad truth is, in 2008, the idea of focusing efforts on recapitalising the banking system was a UK idea. Like many UK ideas, the Americans developed it faster and better."

The US forced all major banks to take state money, buying the stakes at about half their book value, and is already out of most of its positions. The UK paid roughly twice the rate, taking positions in just the three worst-affected banks – RBS, Lloyds and HBOS. Shares in RBS and Lloyds, which acquired HBOS, remain below the taxpayer's in-price.

Although RBS and Lloyds will have to boost their capital, the taxpayer may not have to inject any more than the £65bn already invested, the regulators said. The two banks can sell assets or "reduce their investment bank balance sheets, for instance", Andrew Bailey of the Financial Services Authority, suggested.

Lloyds is said to be considering the sale of parts of its wealth management arm, while RBS is under pressure to offload parts of its US operation and shrink its investment bank.

The UK's other banks and building societies are under similar regulatory scrutiny, following the FPC's warning in November that the industry had up to £60bn of hidden losses on its balance sheet – from understated bad debts to underestimated provisions to cover fines and compensation for Libor rigging and other scandals.

The FPC wants capital positions reinforced to support economic growth. Nationwide Building Society is already looking at raising £500m.

Mr King argued that the best course of action was to deal with a lack of capital "straight away". "Banks have two options – either they raise more capital or they restructure. Investors may not like it, but they will be better off over time," he added.

The British taxpayer now owns 41pc of Lloyds and 82pc of RBS. (© Daily Telegraph London)

Irish Independent

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