Agence France-Presse — Getty ImagesThe Lloyds Banking Group and Royal Bank of Scotland plan to retain earnings and sell assets to increase their capital reserves.
LONDON – Two of Britain’s largest banks outlined plans on Wednesday to increase their capital reserves after local authorities demanded recently that the country’s largest financial institutions raise a combined £25 billion ($38 billion).
Royal Bank of Scotland and the Lloyds Banking Group, which are both owned in part by British taxpayers after receiving multibillion-dollar bailouts during the financial crisis, said they would meet the shortfall by retaining earnings and selling assets.
Both British banks added that they would not have to raise additional capital in the financial markets to meet the regulatory requirements.
The latest announcements come as banks across Europe, including Deutsche Bank and HSBC, are taking steps to bolster their capital reserves in line with new accounting standards known as Basel III.
European authorities are eager to protect the Continent’s firms from instability caused by delinquent assets and exposure to risky trading and have outlined plans that require financial institutions to bolster their capital reserves.
On Wednesday, neither R.B.S. nor Lloyds disclosed the specific amount of capital that British regulators have demand they raise as part of attempts to shore up British banks in case of future financial shocks.
Analysts had raised concerns, though, that the banks were two of the most vulnerable of the country’s largest financial institutions despite years of restructuring to shed so-called noncore assets and return to profitability.
After receiving bailouts in 2008, both banks have struggled to jettison legacy assets, including billions of dollars of underperforming loans, that have weighed on their financial performances.
R.B.S., in which the British government holds an 81 percent stake, said on Wednesday that it would meet its increased capital needs by continuing to reduce its exposure to risky assets and shrinking its investment banking unit, while also selling more assets.
Since the financial crisis began, the bank has reduced its balance sheet by more than £600 billion of noncore assets and has eliminated more than 30,000 jobs.
The bank, which is based in Edinburgh, also said it would raise additional money through the initial public offering of a stake in its American division, the Citizens Financial Group, which is planned for 2015.
“R.B.S. remains committed to a prudent approach to capital,” the bank said in a statement on Wednesday.
Shares in R.B.S. rose about 1 percent in morning trading in London on Wednesday, while those of Lloyds fell less than 1 percent.
Lloyds, in which the government holds a 39 percent stake, also said it would meet its capital needs by shedding noncore assets and refocusing on its main retail business.
The bank added that it planned to have a core Tier 1 capital ratio, a measure of a bank’s ability to weather financial shocks, of 10 percent by the end of 2014, under accounting rules outlined by the European Union.
Lloyds has announced a series of divestments, including the £400 million sale of its stake in the wealth manager St. James’s Place, in a bid to raise capital.
The British government is moving closer to starting the process of reducing its stakes in R.B.S. and Lloyds.
After years of lackluster financial performance, the share prices of the two banks have rebounded over the last 12 months as restructuring plans have taken root.
The chairman of R.B.S., Phillip Hampton, gave the latest indication of the bank’s return to private ownership this month after he said the government’s stake could start to be sold in the middle of 2014.
“It could be earlier, that’s a matter for the government,” he added at the time.
The Prudential Regulatory Authority, the regulator in charge of Britain’s largest banks, said on Wednesday that it was still in discussions with several institutions about their capital positions.
Recent attention has focused on the Co-operative Bank, a small British lender whose credit rating was recently downgraded to junk status because of its continued exposure to delinquent commercial real estate loans. The bank may have to raise up to £1 billion of additional capital, according to a recent report by Barclays analysts.
“Banks are scraping around to raise funds to mitigate the impact of the capital requirements,” said Ian Gordon, a banking analyst at Investec in London. “The pressure has accelerated.”
Article source: http://dealbook.nytimes.com/2013/05/22/r-b-s-and-lloyds-plan-to-raise-capital/?partner=rss&emc=rss
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