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British banks need £13.4-bn more capital

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(GlobalPost/GlobalPost)

Five British banks, including Barclays and bailed-out pair RBS and Lloyds, must together find an extra £13.4 billion to meet international rules on amassing sufficient capital cushions against the threat of future financial crises, the Bank of England said Thursday.

The BoE's banking supervision arm said the five lenders, comprising also The Co-operative Bank and Nationwide Building Society, faced a total shortfall of £27.1 billion as of the end of 2012.

The banks already had plans in place to raise £13.7 billion of capital -- but needed to find another £13.4 billion ($20.7 billion, 15.7 billion euros) via asset disposals and internal restructuring, the Prudential Regulation Authority (PRA) said in a statement.

This would allow the lenders to have a capital cushion equivalent to at least 7.0 percent of the risks being carried by a bank, as required by so-called Basel Three international rules created in response to the 2008 financial crisis.

The EU supervisor, the European Banking Authority, is requiring core capital to amount to 9.0 percent of the risks within the region.

Out of the extra £13.4 billion needed, Barclays must raise an extra £1.7 billion, while bailed-out Lloyds Banking Group (LBG) and Royal Bank of Scotland (RBS) require £7.0 billion and £3.2 billion respectively, the PRA added.

The three lenders each said in response that they were on course to raise sufficient new capital via restructuring and disposals, and would not need to issue shares.

The Co-operative Bank, a mutual owned by its customers, had earlier this week already laid out plans to increase its capital cushion by £1.5 billion following the regulator's review.

The PRA on Thursday added that the British arms of HSBC, Santander and Standard Chartered banks all had surplus capital at the end of 2012 and therefore did not need to take action.

Its announcement came one day after British finance minister George Osborne ordered a review into whether state-rescued Royal Bank of Scotland should be split into 'good' and 'bad' banks, with the latter housing written-off assets, as part of the government's plan to return RBS to the private sector.

Chancellor of the Exchequer Osborne had added that the coalition government was also considering options for selling its stake in LBG, which like RBS won a massive state bailout following the 2008 global financial crisis.

RBS, 81-percent owned by the government, has been left shellshocked after chief executive Stephen Hester last week announced that he was stepping down after five years in the role.

The announcement of Hester's exit later this year sent shockwaves through Britain's financial sector because he had previously said that he wanted to complete the Edinburgh-based bank's difficult journey out of government ownership back to the private sector.

Analysts believe that Osborne wanted a new face to help guide Royal Bank of Scotland's return to private ownership, which is not expected until late 2014 at the earliest.

RBS was rescued with £45.5 billion of taxpayer cash at the height of the financial crisis under the then-Labour government, making it the world's biggest ever banking bailout.

Hester, who was effectively hired by the government, has earned the respect of the business community by axing 41,000 jobs, selling non-core assets and transforming the lender's balance sheet.

At the same time, unions have been scathing of his management, especially as the massive jobs cull occurred alongside Hester earning millions of pounds in salary during his time in charge.

Osborne on Wednesday added that the government was considering options for share sales in LBG, which is 39-percent owned by the British taxpayer.

LBG recently failed in a bid to sell 632 branches at a loss to The Co-operative Bank because of the latter's financial black hole.

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http://www.globalpost.com/dispatch/news/afp/130620/british-banks-need-134-bn-more-capital