U.K. banks under pressure

U.K. banks, under pressure from the Bank of England to increase capital, may do exactly what the central bank doesn’t want them to do: Cut lending.

Britain’s four-biggest banks may need as much as 60 billion pounds in extra capital to meet future loan losses, compensate customers and pay regulatory fines, according to the Bank of England’s Financial Stability Report last month. Central bank Governor Mervyn King is pressing banks to raise capital levels without reducing lending to support an economy struggling to avoid a triple-dip recession.

Lloyds and RBS (RBS) have the most capital to raise because of their higher ownership of “difficult” assets such as commercial real estate in Ireland, Morgan Stanley analysts including Chris Manners wrote in a Dec. 17 note to investors.

Manners estimates the FSA will find banks need 26 billion pounds of capital in its so-called base case, with the shortfall ranging from 11 billion pounds to 93 billion pounds. RBS may need 7.87 billion pounds, Lloyds 6.51 billion pounds, HSBC Holdings Plc (HSBA) 6.39 billion pounds and Barclays 5.55 billion pounds, he wrote.

Banks may have to cut the price of assets to achieve sales. RBS will probably have to accept a lower offer for 316 branches it has to sell after Santander abandoned a 1.7 billion-pound offer for them, a person with knowledge of the matter said last month.

http://www.bloomberg.com/news/2012-12-21/u-k-banks-seen-sacrificing-lending-to-meet-boe-demand.html