Lenders told to plug £27bn hole
Five of Britain's biggest lenders must plug a combined £27.1 billion 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.
The Prudential Regulation Authority (PRA) said Barclays needs to boost its balance sheet by £3 billion, while state-backed players RBS and Lloyds must raise £13.6 billion and £8.6 billion respectively.
Nationwide building society is facing a £400 million shortfall, while The Co-operative must stump up £1.5 billion 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 £13.7 billion of the extra capital required and will stump up the remainder by the end of 2013 and early 2014. 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.
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 on Wednesday 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.