Bank shareholders may have been eagerly awaiting the chancellor's Mansion House speech last night for signs of the government's strategy for selling its stakes in RBS (RBS) and Lloyds (LLOY). But it was news from bank regulators the next day - of a hefty combined sector capital shortfall - that looks of more immediate significance for bank investors.
Indeed, the chancellor's speech contained little really new or detailed thinking. With Lloyds, George Osborne says the government is "actively considering options for share sales". Moreover, and despite saying that he has no "pre-fixed timescale", investors should expect action sooner rather than later - given that the shares, at 61.4p, trade roughly at the government's average buy-in price. An institutional placement, followed by some form of retail offer, looks like the government's preferred method of disposal - so last week's suggestion of a mass distribution to taxpayers, for free, from pro-Tory think tank, the Policy Exchange, appears to have been rejected.
With RBS, however, there was some surprise - Mr Osborne actually seems genuinely open minded about considering plans to split the lender into a 'good bank', with the best assets, and a 'bad bank', containing the dross. He has promised a review and a decision by the autumn. But, as the government doesn't own all of RBS, and as Mr Osborne isn't prepared to "put more taxpayer capital into RBS", then splitting the bank won't be easy and could even delay a share sale. It's not a route that has impressed the City. "Chancellor Osborne has missed a great opportunity to kill such value-destructive talk stone dead," said analyst Ian Gordon of broker Investec Securities. "Any hope of a near-term sell-down of (part of) the government's 81 per cent stake is de facto abandoned, and poor RBS looks set to remain a political football."
But while the future of the government's RBS and Lloyds shares inevitably grabs headlines, it's hard-headed analysis from the Bank of England's Prudential Regulatory Authority that's looks of more immediate practical significance for bank shareholders. That covered all five listed UK banks, along with the Co-op, the UK arm of Santander, and building society Nationwide. Grimly, and using end-2012 figures, it concluded that five of these eight institutions are facing a combined £27.1bn capital shortfall - based on 7 per cent capital ratio and using Basel III criteria.
The weakest was RBS, with a £13.6bn shortfall, followed by Lloyds (£8.6bn) and Barclays (BARC), with £3bn - Nationwide's was £0.4bn and the Co-op's £1.5bn. Santander, HSBC (HSBA) and Standard Chartered (STAN) had no shortfalls at all. But the figures aren't as worrying as they seem. RBS reckons that the shortfall will drop to just £400m by end-2013 - reflecting such capital-generating measures as the planned partial flotation of its US Citizen operation. And both Barclays and Lloyds expect to exceed the 7 per cent capital ratio by the end of this year.
