Barclays, RBS and Lloyds need £80bn more in capital, analyst warns

Britain’s three top lenders need another £80bn of capital to end concerns about their solvency once and for all, stabilising the financial system, according to analysts at investment bank Nomura.

The warning will fuel fears that Royal Bank of Scotland, Lloyds Banking Group and Barclays may be fully nationalised, coming after a week in which share prices in all three banks have more than halved. Nomura added that the latest Government bail-out measures “do not change the key issue of the unknown and potentially unlimited losses of the banking system, and therefore whether it will ultimately require further capital injections”.

Investors in banks have been spooked by worse-than-expected losses at HBOS and RBS. Comparing the current recession with the 1990s, Nomura estimates that over four years Barclays will record credit losses of £33bn, Lloyds £56bn and RBS £61bn.

Although the analysts expect the cumulative credit losses to be offset by profits, the banks will need fresh capital if the bad debts hit early and the profits come through at the end of the four years. Nomura added that there is clear evidence losses are mounting more quickly than expected.

“The latest announcements illustrate the pace at which capital is being absorbed,” it said. “RBS raised about 410 basis points of tier-one capital, some 300 points of which has already been absorbed. At Barclays, capital raisings were equivalent to 390 points, of which 230 points have been deployed.”

Barclays said that much of the capital depletion was due to exchange rate and regulatory movements, rather than trading losses.

“To remove downside risk to solvency, Barclays, RBS and Lloyds alone could require equity injections of £80bn. Support on this scale is unlikely without very significant dilution to existing shareholders and/or full-scale nationalisation.”

Nomura does not break out each bank’s potential capital needs but, extrapolating from its estimates, Barclays may need another £17.5bn, Lloyds £30bn and RBS £32.5bn.

By Philip Aldrick, Banking Editor
Last Updated: 8:00PM GMT 22 Jan 2009

Source: The Telegraph

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