RBS the 'most vulnerable' bank in Europe, say Credit Suisse analysts
Published 14/10/2011 | 09:04
ROYAL Bank of Scotland is the "most vulnerable" bank in Europe and could be forced to raise £17bn in new money to shore up its capital ratios, more than any other major European lender, according to analysts at Credit Suisse.
The UK state-backed bank is already 83pc owned by the taxpayer and would likely face full nationalisation under the scenario set out by Credit Suisse, which estimates RBS might face a capital shortfall of £16.9bn in a new round of Europe-wide industry stress tests.
"RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them," said Credit Suisse.
RBS declined to comment on the Credit Suisse note.
Last week, the bank hit back at a press report that there were fears within the Government that it might require a second bailout on the back of new losses related to its exposure to peripheral European countries.
A source close to RBS described the Credit Suisse report as an "outlier" and other analysts say the bank is unlikely to need a new capital injection.
"The simple conclusion was, and remains, that, unlike their European peers, no UK bank needs to raise a penny of additional capital through fresh issuance," said Ian Gordon, a banks analyst at Evolution Securities.
On Thursday night, 90 banks across Europe, including RBS, Lloyds Banking Group and Barclays, handed over updated stress test forms to the European Banking Authority as part of a new round of tests.
Credit Suisse estimates that about 66, or two-thirds, of the banks taking part could fail the latest test and said the lenders' combined capital shortfall based on a new minimum capital Tier 1 capital threshold of 9pc could be €220bn (£193bn).
Josef Ackermann, chief executive of Deutsche Bank, attacked plans outlined on Wednesday by European Commission president Jose Manuel Barroso to force banks to raise new money.
"It cannot be in the interests of stabilising the financial markets to fabricate an imaginary weakness of the European banking industry through the artificial tightening of capital requirements," Mr Ackermann was reported to have told Wolfgang Schäuble, according to a leaked copy of a letter sent by him to the German finance minister.
Fears of a new round of capital injections weighed heavily on bank share prices on Thursday. RBS closed down 6.4pc at 24.16p, while Barclays fell 7.4pc to 173.2p and Lloyds was down 5.5pc at 34.26p.
The falls were in part driven by the announcement from Fitch of its decision to downgrade the major UK banks, citing the expectation that they could expect a lower level of government support in future.
Lloyds and RBS had their long-term default ratings cut from AA- to A and Barclays' "viability rating" was put on negative watch by the US agency.
On Thursday night, Fitch also placed Bank of America, Morgan Stanley and Goldman Sachs on review for possible downgrades. It also downgraded Swiss bank UBS while putting 12 other major European and US banks on negative ratings watches.
"The banking system is not only large relative to the UK economy, but there is also more advanced political will to reduce the implicit support for the country's banks, building on The Banking Act 2009 and, more recently the various policy recommendations of the Independent Commission on Banking [ICB]," said Fitch.
The downgrades follow the decision by rival agency Moody's last week to cut the ratings of 12 UK banks for similar reasons.
Sir John Vickers, chairman of the ICB, told MPs on Monday that the downgrade was "benign" and that he was not concerned by it.
Separately, JP Morgan on Thursday reported flat year-on-year earnings for the third quarter after a downturn in investment banking.