Britain’s new banking regulator has rattled lenders by holding off disclosing how much capital each firm will have to raise after ordering the industry to plug a 25 billion-pound ($38 billion) shortfall by the end of the year, three people with knowledge of the discussions said.
The Prudential Regulation Authority, the unit of the Bank of England that took over supervision of the industry from the Financial Services Authority this month, isn’t expected to detail the steps all banks need to take to bolster their balance sheets until mid-May at the earliest, said two of the people who asked not to be identified because the talks are private. Banks had expected to be told in March, one of the people said.
That delay could leave banks less than seven months to plug the gap identified by the Bank of England. The regulator is recommending the firms raise capital to cover bigger potential losses, possible fines for mis-selling and stricter risk models. Chancellor of the Exchequer George Osborne in February ruled out injecting any more public money into state-owned Royal Bank of Scotland Group Plc.
“It’s surprising that they haven’t been told yet,” said Cormac Leech, a banking analyst at Liberum Capital Ltd. in London. “The PRA is getting off to a bad start, potentially destabilizing the financial system rather than stabilizing it.”
The banks will hold within the next three weeks their first formal meetings with the PRA since the central bank published its report on March 27, the people said. They will discuss the assessment by the Bank of England’s Financial Policy Committee and the capital plans the banks have already outlined, the people said.
RBS fell 1.9 percent to 295.10 pence in London trading today, Barclays Plc declined 1 percent to 290.70 pence and Lloyds Banking Group Plc slipped 0.5 percent to 52.91 pence. HSBC Holdings Plc climbed 1.4 percent to 699.90 pence and Standard Chartered Plc rose 1.1 percent to 1,632.5 pence.
Officials at RBS, Lloyds, HSBC and the PRA declined to comment on the discussions. Barclays Finance Director Chris Lucas told reporters this week that talks with the regulator are continuing.
HSBC and Standard Chartered, the two British banks that get most of their profit from Asia, have the strongest core Tier 1 capital ratios under the latest rules set by the Basel Committee on Banking Supervision of 9.8 percent and 10.7 percent. Barclays has a ratio of 8.4 percent, Lloyds 8.1 percent and RBS 7.7 percent, according to company filings.
Britain’s lenders have been selling units and detailing plans to bolster their businesses since the central bank initially said in November it was concerned that banks weren’t holding enough capital.
Since then, Lloyds has sold a 20 percent stake in wealth-manager St. James’s Place Plc and is considering a sale of its Scottish Widows Investment Partnership division. Edinburgh-based RBS said in February it would sell a 25 percent stake in Citizens Financial Group Inc., the U.S. consumer and commercial lender acquired in 1988, and would further shrink its investment bank. Barclays, Lloyds and RBS also plan to sell contingent convertible notes to boost their financial strength.