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U.K. Banks May Face 100 Billion-Pound Capital Gap, Exane Says

Oct. 17 (Bloomberg) -- U.K. lenders may face a 100 billion-pound ($161 billion) capital shortage under a proposal by the country’s Prudential Regulation Authority, which could force banks to postpone dividends and depress their returns, according to Exane BNP Paribas analysts.

Lenders would need to hold a fully loaded equity Tier 1 ratio of 13 percent over time should the regulator adopt its proposal in full, the analysts, led by Jonathan Pierce, wrote in a note to clients today. Banks are likely to be given time to build up the buffer, prompting a review of their liabilities, the analysts said.

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, is the only U.K. bank likely to reach the target by 2015, said Exane. While the PRA is unlikely to force other banks to scale back their assets quickly or sell more stock to investors, dividend payments are at risk, the analysts wrote.

To maintain a return on tangible equity target of 12 percent, U.K. banks would also have earn 20 billion pounds on a net basis, twice the level indicated by first-half earnings, they said.

Similar requirements are unlikely to be adopted by regulators in other European nations, according to Exane.

To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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