Considering the European Banking Authority conducted its own stress tests earlier this year, results from the Bank of England’s own stress test, released today, don’t contain any real surprises, according to Jefferies analysts Joseph Dickerson, Omar Fall, and William Davison. But they also don’t think Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) will be able to pay out any significant dividends until 2016 while it continues to build capital.

“Our conclusion is that the results are likely to be worse than the consensus expected for LLOY and that the bank’s ultimate go-to capital ratio is likely to be higher than the 11% that management guides,” they write. “Expectations that LLOY will commence a dividend this year are misplaced.”

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Stress Test – Lloyds had largest drop in capital under stressed conditions

Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) and Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) started with 10.1% and 8.6% common equity tier 1 (CET1) capital ratios respectively, but under the Bank of England’s stressed scenarios those ratios fell to 5.0% and 4.6% against a minimum 4.5% pass rate. The Jefferies analysts point out that after management actions such as cost cutting, the stressed ratios rose to 5.3% for Lloyds and 5.2% for RBS, and that the ratios don’t take this year’s capital accumulation into account.

Even so, they think that because Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) had the biggest drop in capital under the stress test, the Bank of England’s Prudential Regulatory Authority (PRA) will make it raise more than the 11% regulatory capital currently being anticipated. That could mean another year focused on building capital instead of paying dividends.

Jefferies rates Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) as Underperform and Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) as a Buy.

Co-Op to submit a revised capital plan after failing stress test

Based on the results, it does look like the BoE stress test was harsher than the EBA tests earlier this year. Even after including the ‘management action’ most banks ended up with lower estimated capital under adverse conditions in the BoE test. Co-Op was the only bank that wasn’t able to reach the 4.5% minimum even after taking those actions into account. It will have to submit a revised capital plan showing how it plans to make up the difference.