Lloyds Banking Group must plug a capital shortfall of 8.6 bln pounds ($13.5 bln), Britain's banking regulator said on Thursday, a day after the government signalled plans to return the part-state owned lender to the private sector.
Britain is trying to restore confidence in a banking sector that had to be shored up by taxpayers during the 2007-09 financial crisis. Apart from the large minority stake in Lloyds, it also owns 81% of Royal Bank of Scotland.
The Prudential Regulation Authority (PRA) said the aggregate capital shortfall at five UK banks at the end of 2012 was 27.1 bln pounds, slightly higher than its 25 billion initial estimate in March this year.
The banks had already outlined plans in March to raise 12.5 bln pounds during this year – roughly half the total shortfall – and the PRA raised this estimate to 13.7 bln on Thursday.
The aim is for banks to have a core capital buffer equivalent to 7% of their risk-weighted assets by December, the minimum level under new global Basel III capital rules now being phased in.
In a new move, the PRA also set a leverage ratio of 3% for UK banks with immediate effect, which effectively limits the amount they can lend based on their capital. This is five years earlier than a globally agreed deadline.
RBS, which the government has said will take longer to return to full private ownership, had a total capital shortfall of 13.6 bln pounds at the end of December, Lloyds 8.6 bln and Barclays 3 bln, the PRA said.
The PRA said Barclays' leverage ratio fell short of its new requirement at 2.9%, and would be only 2.5% after adjustments. It said Barclays and Nationwide must submit plans by the end of this month to reduce leverage.
Barclays said its restructuring plans include a reduction in leverage "over time" and it would keep the market updated as required.
Lloyds has already announced plans to raise 5.8 bln pounds in capital and on Thursday said it expects to meet the remaining 2.8 bln requirement through capital generation and won't need to issue hybrid debt or shares.
ON THE BLOCK
Finance Minister George Osborne said on Wednesday that Britain was ready to start selling shares in Lloyds and would consider breaking up RBS.
Barclays said it can fill its 3 bln pound gap from earnings and other restructuring measures and does not plan to issue new shares. RBS said in a statement it expects to continue to improve its core capital ratio during this year.
The PRA said the Co-op had a shortfall of 1.5 bln pounds and Nationwide 400 mln pounds. There were no shortfalls at HSBC, Standard Chartered or Santander UK , the watchdog, part of the Bank of England, said.
The PRA said it has given some flexibility by allowing some banks to complete actions during the first half of 2014.
After the actions planned so far, four banks will still have a shortfall and they have been required to submit plans for additional actions.
