UK: Major banks told by PRA to plug balance sheet shortfalls totalling £27bn

Barclays has been told it needs to boost its balance sheet by £3bn

Barclays has been told it needs to boost its balance sheet by £3bn - Credit: PA

Five of Britain’s biggest lenders must plug a combined £27.1billion hole in their finances, with Barclays, Lloyds Banking Group and Royal Bank of Scotland accounting for more than 90% of the shortfall, the City regulator revealed today.

The Prudential Regulation Authority (PRA) said Barclays needs to boost its balance sheet by £3bn, while state-backed players RBS and Lloyds must raise £13.6bn and £8.6bn respectively.

Nationwide building society is facing a £400million shortfall, while The Co-operative must stump up £1.5bn as already announced.

HSBC, Standard Chartered and Santander UK do not need to bolster their capital cushions, the PRA said.

The PRA said the banks already had plans in place to raise £13.7bn of the extra capital required and will stump up the remainder by the end of 2013 and early 2014.

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It added that Nationwide and Barclays must raise additional capital to reduce their leverage and must submit their proposals by the end of the month.

Barclays, Lloyds and RBS said they were confident in their ability to meet the PRA’s requirements.

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The total combined shortfall is the amount banks need to raise in order to ensure their balance sheets are healthy enough to withstand future financial shocks and prevent a repeat of the banking meltdown in 2008.

Lloyds and RBS already confirmed last month they would not need to tap investors for extra cash to shore up their finances.

RBS, which has by far the biggest capital gap, said actions being taken would reduce its capital shortfall to £400 million by the end of the year, adding it aimed to resolve the remainder within the first quarter of next year.

Barclays said it was “confident” of boosting its capital by the end of the year and would not need to make a cash-call to investors.

It is slashing costs across the business, while also selling certain assets and confirmed plans to further boost finances through contingent convertible securities, known as CoCos, which automatically convert to equity should capital levels fall.

The PRA said it has asked firms to ensure that all plans to address shortfalls do not reduce lending to the real economy.

But there are fears the tough rules will hamper their ability to lend at a crucial time for the wider economic recovery.

The figures will also increase pressure on RBS, which is 81%-owned by the State, as it faces the threat of being split into a “good” bank and a “bad” bank and as it searches for a new chief executive following the announcement that Stephen Hester will leave later this year.

Chancellor George Osborne confirmed in his annual Mansion House speech last night that he has ordered an urgent review, to report in the autumn, into the possibility of breaking up RBS to separate out toxic assets and risky loans from parts of the business which support the economy.

This follows calls for an urgent rethink of RBS privatisation plans in yesterday’s final report from the Parliamentary Commission on Banking Standards.

Mr Osborne also poured cold water on expectations of a sell-off of RBS shares at a loss, ruling out “a quick sale”.

RBS chairman Sir Philip Hampton said in response to Mr Osborne’s comments: “We welcome the Chancellor’s review. Proposals that could speed RBS’s privatisation while allowing us to support our customers deserve thorough consideration.

But he stressed: “Ultimately, any change to our strategy would need to be in the interests of all shareholders.”

Mr Osborne also said last night the Government was preparing to return Lloyds to the private sector, adding the bank was in a “good position” with growing investor interest and shares trading at “around the price where selling would reduce the national debt”.

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