RBS And Lloyds Bank Downplay Capital Concerns

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Britain’s largest banks Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) today announced that they will not need to raise fresh capital from investors.

In March, Bank of England’s Financial Policy Committee indicated that the U.K. banking sector had a £25 billion capital shortfall. It was widely believed that some £9 billion would be attributable to Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY).

The British government holds 81 percent stake in Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) while it holds a 39 percent stake in Lloyds Bank.

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Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS), based in Edinburgh, scotched suggestions for fresh capital raising by emphasizing that it would stick to its plan to strengthen its capital through a further shrinkage of its investment bank and its planned initial public offering of a stake in its American Division, the Citizens Financial Group during 2015.

Regulators are mandating the capital requirements to protect banks against possible future shocks to the banking system, and prevent them running out of money in the event of another credit crunch.

The Prudential Regulation Authority (PRA), a unit of the Bank of England, said this morning that it had completed its review of Lloyds and RBS and that it was comfortable with both the banks’ plans. However, PRA said it was continuing discussions with other banks, including possible measures they may need to take to raise more cash.

Today’s announcement by Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) come amid banks across Europe, including Deutsche Bank and HSBC, are taking steps to bolster their capital reserves to meet Basel III requirements.

U.K’s largest retail bank Lloyds Bank indicated that it would meet its capital requirements by divesting non-core assets and refocusing on its main retail business. Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) reiterated that its core Tier I capital ratio would exceed 9 percent in 2013 and 10 percent by the end of 2014.

It may be recalled, after receiving bailout support in 2008, both Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY) have been struggling to dispose of legacy and non-performing assets, which weighed heavily on their financial performances.

However, since the bailout support, Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) has successfully downsized its balance sheet by over £600 billion of non-core assets and eliminated over 30,000 jobs.

Meanwhile, the Washington-based IMF told U.K. government that if the banks did need additional capital to enhance their financial strength, it should plough more tax payer funds.

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