Banks moving fast to fill hole in capital buffer

Tim Wallace
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BRITAIN’S biggest banks were under-reporting their capital positions by £2.1bn more than previously thought at the end of last year, the Bank of England said yesterday – but they are also well on the way to filling the gaps.

The prudential regulation authority (PRA) applied tougher analysis to banks’ balance sheets than the lenders were using, to see how safe they were.

The regulator found banks needed £27.1bn more to get to a core tier one capital ratio of seven per cent, the internationally agreed Basel III level.

That was above the £25bn earlier estimated by the Bank of England.

RBS was underestimating its risk weighted assets (RWAs) by £56.3bn, according to the PRA’s tougher measure, and needed to find £13.1bn more.

The bank found £2.4bn of that in the first quarter, and hopes to cut it down to £10.4bn by the end of the year, finally closing it in the first three months of 2014. Much of that will be achieved by cutting back its investment banking operations further – part of a plan to cut RWAs by at least £30bn.

Lloyds had the second biggest shortfall at £8.6bn. It has plugged most of that already by selling off overseas assets like its US mortgage book and its international private banking units.

Of the roughly £2.1bn remaining, half is being filled by reshuffling its resources internally – paying a £1.6bn dividend from Scottish Widows will fill £1bn of the gap, while saving up profits should fill the rest by the end of 2013.

Barclays came next with a capital hole of £3bn. It has already filled £1.7bn of that, and will hit the target by the end of the year through asset sales, securitisations and running down non-core parts of the business. And Nationwide had a £0.4bn shortfall, to be filled with profits and a rearrangement of some resources internally.