BRITISH banks will have to find buyers for £23bn worth of new, expensive debt due to the Vickers Commission and new EU rules, according to an analysis by JP Morgan Cazenove.
The requirement will knock four to seven per cent off their profits, said analysts Raul Sinha and Vivek Gautam, who say that the Vickers Commission is a key reason why some British banks’ valuations are so low compared to their rivals on the continent.
The note to investors, entitled “Valuations reflect regulatory overhang”, says that the Treasury has mitigated some of the damaging effects of the Vickers Commission.
Most importantly, because the UK looks set to use EU technical definitions to force banks to hold “bail-in” debt – bonds that force their owners to take losses if the bank fails – instead of drafting its own, some of the costs have been reduced.
The Vickers Commission, which drafted the outlines of Britain’s bank reforms, said that lenders must hold ten per cent of their capital in common equity and a further seven per cent in “bail-in bonds”. But the market for such bonds is untested.