Co-Op Bank Fails U.K. Stress Test; RBS, Lloyds Scrape By Bloomberg News By Ben Moshinsky, Stephen Morris and Richard Partington December 16, 2014 Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, Britain’s two publicly owned lenders, barely passed the Bank of England’s first stress test, while Co-Operative Bank Plc failed. Co-Operative Bank will now cut 5.5 billion pounds ($8.6 billion) more assets by 2018 under a plan agreed with the regulator. RBS said it will sell 2 billion pounds of notes to bolster capital. None of the banks will have to sell new stock. The BOE follows its U.S. and European counterparts in using stress tests to try to revive investor confidence in lenders. Six years after the financial crisis, shares of four of the U.K.’s five largest banks trade for less than their book value, or total assets, according to data compiled by Bloomberg. “This was a demanding test,” BOE Governor Mark Carney said in a statement. “The results show the core of the banking system is significantly more resilient, that it has the strength to continue to serve the real economy even in a severe stress.” The U.K.’s eight biggest banks were probed on their resilience to shocks including a jump in the unemployment rate to 12 percent, a rise in the BOE benchmark interest rate to 4 percent and house prices falling by more than a third. RBS fell 0.4 percent to 362.30 pence as of 9 a.m. in London trading. Lloyds was little changed and Barclays was down 0.1 percent. Co-Operative Bank is owned by a group of hedge funds after its parent, Co-Operative Group Ltd., ceded control of its banking operation to its creditors. “The market wasn’t expecting any other bank to fail,” said Gary Greenwood, a Liverpool, England-based analyst at Shore Capital Group Ltd., who rates RBS and Lloyds a hold. Core Ratio The stress test reduced RBS’s core capital ratio, a measure of financial strength, to 4.6 percent, based on end-2013 data, just above the 4.5 percent pass threshold. Lloyds came in at 5 percent, while Co-Operative Bank failed the assessment, ending up at minus 2.6 percent. The BOE said that both Lloyds and RBS took actions in 2014 to address the shortage of capital and don’t have to submit new plans to bolster resilience. In contrast, Co-Operative Bank was required to submit a new plan to shrink its balance sheet, which was accepted by the Prudential Regulation Authority. Co-Operative Bank, which had signaled earlier this month it would flunk the test, said it will try to cut residential mortgage assets and doesn’t expect to be profitable before 2017, according to a statement today. ‘Much Stronger’ “The bank is much stronger than a year ago,” Co-Operative Bank Chief Executive Officer Niall Booker said in a statement. “Given we are in the early stage of our plan, the original capital deficit and the nature of our assets, it is no surprise that we have not met the severe stress test hurdle today.” RBS said it plans to issue about 2 billion pounds of additional Tier 1 capital instruments with a trigger ratio of 7 percent. It will continue to shrink assets and sell its Citizens Financial Group Inc. operation in the U.S. The Edinburgh-based lender today also agreed to sell a group of Irish real estate loans to a unit of Cerberus Capital Management for about 1.1 billion pounds. “We recognize that there is still much work to be done to improve the resilience of our balance sheet,” RBS Chief Financial Officer Ewen Stevenson said in a statement. He said the bank remains on track to meet its target of an 11 percent common equity tier 1 ratio by the end of 2015. HSBC, Santander All other banks passed, with HSBC Holdings Plc (HSBA) getting the highest core capital ratio, at 8.7 percent in the assessment. Barclays Plc ended the exams with 7 percent, Santander U.K. and Standard Chartered Plc (STAN) had 7.6 percent and 7.1 percent, respectively. Nationwide Building Society had 6.1 percent. The PRA took over U.K. banking regulation last year from the Financial Services Authority, which was blamed by lawmakers for failing to prevent the financial crisis in 2008 and subsequent bailouts of Lloyds and RBS. Culled from Bloomberg Ibrahim, B.Sc. (Unimaid Ng, 2007), MBF (BUK Ng, 2011), MIBF (BUK Ng, 2014), CHCPD UK, 2014) ................, Nigeria.
Posted on: Sun, 21 Dec 2014 08:10:13 +0000
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