U.K. Banks to Satisfy BOE and Avoid Share Sales on Earnings

Britain’s biggest banks said asset sales and funds generated from internal growth mean they won’t need to sell shares to meet the Bank of England’s 13.4 billion pounds ($21 billion) in capital requirements announced today.

Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc all said sales of businesses and packages of loans and retained profits mean they won’t need to raise money from equity investors. HSBC Holdings Plc, Standard Chartered Plc and Banco Santander SA’s British division were told no extra capital was required from them by the central bank today.

“The U.K. banks look set to broadly achieve the Prudential Regulation Authority’s capital requirements without the need to issue new equity,” Gary Greenwood, a banking analyst at Shore Capital in Liverpool, England, wrote in a note to clients today.

The PRA, the BOE’s new banking supervisor, today outlined the capital that lenders must raise by the end of 2013 to withstand possible losses on loans, fines and other risks. Outgoing Bank of England Governor Mervyn King said in a speech last night that it was “too soon to say the job is done” given lenders’ leverage levels.

“There is clearly some way to go before we can claim to have a really well-capitalized banking system,” the governor said at London’s Mansion House. Mark Carney takes over from King on July 1.

Previous Shortfall

The central bank had previously found a capital shortfall of 27.1 billion pounds when it last assessed lenders’ balance sheets.

Bank shares fell in London trading today, though most of them declined less than the benchmark FTSE 100 Index. Lloyds, Britain’s biggest mortgage lender, slipped 0.1 percent as of 9 a.m. local time. RBS, the nation’s biggest government-owned bank, dropped 0.7 percent, while Barclays slid 2.2 percent.

Barclays, the U.K.’s second-largest bank by assets, must raise an additional 1.7 billion pounds in fresh capital, the U.K. central bank said in its statement. Lloyds and RBS must boost capital by 7 billion pounds and 3.2 billion pounds respectively, on top of plans they’ve already announced this year, the BOE said.

Lloyds said it won’t need to offer new shares or sell any contingent capital, instead accruing capital from the disposal of a stake in asset manager St. James’s Place Plc, an auction of U.S. mortgage securities and sale of its share of Sainsbury’s Bank. The lender will generate more capital through retained earnings, it said.

RBS Cuts

RBS, whose chief executive officer, Stephen Hester, unexpectedly announced his departure last week, said it will narrow its capital shortfall to 400 million pounds by the end of this year. The Edinburgh-based bank will reach the goal through cuts to its markets business and by applying the latest draft of the European Union version of Basel III rules, known as CRD IV, which will reduce capital charges. It will close the final gap through retained profit in the first quarter of 2014, it said in a statement today.

Barclays said earnings growth and sales of underperforming assets through Chief Executive Officer Antony Jenkins’s announced plans will mean the bank expects to exceed the PRA’s target for capital of 7 percent of risk-weighted assets by the end of the year.

The bank said it will add contingent capital instruments, which are securities that convert to shares or suffer losses should capital levels fall below a given threshold, “as we believe contingent capital is a valuable source of going concern capital.”

Co-Operative Bank Plc and Nationwide Building Society were also required to raise capital.

Before it's here, it's on the Bloomberg Terminal.