The banking sector is living through interesting times. In the past week the industry has witnessed Stephen Hester’s resignation as Royal Bank of Scotland’s (RBS) boss, the Co-op working to fill a £1.5 billion hole in its finances and the Parliamentary Commission on Banking Standards advising that reckless bankers should be jailed.
Bankers awoke today to find themselves in the headlines once again following Chancellor George Osborne’s annual Mansion House speech to the City last night. During the dinner he said the government is preparing to start selling its stake in Lloyds Banking (LLOY). The taxpayer would breakeven on the deal for its 39% shareholding if the bank hits 61.2p. By lunchtime, the shares were trading 0.5% up at 62.03p.
However, the big news centred on Royal Bank of Scotland. Osborne says he is considering the controversial step of hiving off RBS’ toxic assets and riskier loans into a bad bank, which would house many of RBS’ commercial property assets. This would speed up the sale process for its good assets. RBS, 81% state-owned, fell 2.6% to 311.1p.
Part of the bank's market valuation decline was caused by the publication of a report by the Prudential Regulation Authority. The regulator today says the UK’s banks and building societies need to £27 billion to cover their risks.
RBS and Lloyds were at the top of the list needing to raise £13.6 billion and £8.6 billion, respectively. This is in contrast to announcements they made last month (May 22) stating that they expect to meet the Basel III minimum requirement of holding at least 7% of their risk weighted assets in cash. The minimum requirements are set to rise to 10% by the end of the year.
Also on the list was Barclays (BARC), which fell 3.2% to 291.9p after being told it needs to find an extra and a £3 billion. HSBC (HSBA), Santander (BNC) and Standard Chartered (STAN) were given the all-clear.