Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc tumbled to their lowest prices for at least 17 months in London after stress tests exposed the potential for losses from sovereign and real-estate investments.
Lloyds fell 7.5 percent to 41.35 pence at the close of London trading, the lowest price since June 2009. RBS dropped 6 percent to 32.97 pence, its lowest since February 2010, while Barclays declined 7 percent to 207.65 pence, the lowest level since April 2009. The 46-member Bloomberg 500 Banks and Financial Services Index fell to its lowest since April 2009.
“It’s a further reaction to the outcome of the stress tests,” said Simon Willis, an analyst at Daniel Stewart Securities Plc. “HSBC comes our relatively soundly and Standard Chartered wasn’t included. There is little reason from the stress tests for any significant relief.”
European banks may have to raise as much as 80 billion euros ($112 billion) of additional capital after stress tests conducted by the European Banking Authority released on July 15 failed to allay investor concern about a Greek default and governments’ ability to bail-out their lenders, wrote analyst Kian Abouhossein, at JPMorgan Cazenove.
RBS took a 1.82 billion-pound ($2.93 billion) provision for its non-defaulted commercial real-estate loans under the EBA’s adverse scenario for 2011, compared with an actual provision of 482 million pounds for 2010. Lloyds recorded provisions for non-defaulted commercial real estate loans of 338 million euros for 2011 in the tests, compared with 297 million euros for 2010.
Barclays had 8.8 billion euros of Spanish government debt, according to its statement, the most among British banks.
The price of sovereign debt held for the sale by the banks in such countries as Greece, Portugal and Ireland wasn’t discounted as much as bonds for sale in the market, Willis said.
“If you look at the level bonds are trading at for Greece, Portugal and Ireland, there’s quite a marked difference between those levels and the mark-down that’s coming from the available-for-sale book,” he said.