UK banks may need billions in extra capital

22nd Jul 2009 08:14

Tighter regulatory control over their investment bank arms could mean Royal Bank of Scotland and Barclays having to raise billions more in extra capital, banking analysts suggested yesterday, while Lloyds faces a mountain of bad debts. US broker JP Morgan calculates Barclays will need to find another £12.8bn and RBS £8.5bn to meet the new guidelines. The new rules are set to come in to force by 2010, but may be put back if the economy has not started to recover by thenThe broker says Barclays is currently only allocating £8.5bn of capital to Barclays Capital, its investment bank arm, but needs to set aside £23.4bn of reserves. RBS, meanwhile, needs to bump its Global Banking & Markets division's reserves up from £17.1bn to £22.5bn, JPM said.These higher capital requirements will restrict the profitability of investment banks, with return on equity estimated to fall from 15-20% to between 10-15%.UK broker Panmure Gordon meanwhile estimates RBS will be loss making until 2012 and rack up £39bn of bad debt provisions. Analyst Sandy Chen suggests the picture for Lloyds Banking may be even bleaker with £46bn of bad debt provisions predicted for the next two years. Chen expects Lloyds to write-off £24bn this year and £23.5bn in 2010 and forecasts that both Lloyds and RBS will have to sell off significant amounts of assets to meet EU rules on state control.