UK watchdog says Lloyds must raise $13.5 billion capital

Thu Jun 20, 2013 6:46am EDT
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By Huw Jones and Matt Scuffham

LONDON (Reuters) - Lloyds Banking Group (LLOY.L: Quote) must plug a capital shortfall of 8.6 billion pounds ($13.5 billion), Britain's banking regulator said on Thursday, a day after the government signaled 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 percent of Royal Bank of Scotland (RBS.L: Quote).

The Prudential Regulation Authority (PRA) said the aggregate capital shortfall at five UK banks at the end of 2012 was 27.1 billion 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 billion pounds during this year - roughly half the total shortfall - and the PRA raised this estimate to 13.7 billion on Thursday.

The aim is for banks to have a core capital buffer equivalent to 7 percent 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 percent 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 billion pounds at the end of December, Lloyds 8.6 billion and Barclays (BARC.L: Quote) 3 billion, the PRA said.

The PRA said Barclays' leverage ratio fell short of its new requirement at 2.9 percent, and would be only 2.5 percent after adjustments. It said Barclays and Nationwide must submit plans by the end of this month to reduce leverage.   Continued...

A man walks past a sign outside Lloyds Banking Group's headquarters in the City of London 27 February, 2009. REUTERS/Andrew Winning