UK's Nationwide draws up plan to plug 1 billion capital hole-report

LONDON Sun Jun 23, 2013 10:49am EDT

LONDON (Reuters) - Nationwide (POB_p.L), Britain's biggest customer-owned financial services group, is drawing up plans to raise at least 1 billion pounds ($1.5 billion) to fill a hole in its balance sheet, the Sunday Times said.

Nationwide must raise additional capital of 400 million pounds in order to meet a new target for banks to hold core Tier One capital equivalent to 7 percent of their risk-weighted assets, Britain's financial regulator said last week.

In addition, Nationwide must raise extra capital to meet another new requirement by the Bank of England for banks to have a leverage ratio of at least 3 percent. Its leverage ratio currently stands at 2 percent.

The leverage ratio measures capital against total loans, not adjusted for their supposed riskiness, and some bankers argue it penalizes low-risk, high volume businesses like mortgage lending. Nationwide is Britain's third-biggest home loans provider.

Chief Executive Graham Beale has said the leverage ratio is "crude" and "an unsophisticated measure which ignores the quality of an organization's assets".

A Nationwide spokesman said the Sunday Times report was "speculative".

"We are completely confident of meeting the 3 percent ratio target in good time for its introduction as a regulatory measure. We have a wide range of options which we will build into any plans which we devise," he said.

Nationwide said in May that it planned to raise up to 500 million pounds through an issue of so-called core capital deferred shares (CCDS). The Sunday Times said it could issue a 500 million-pound bond within weeks followed by a second bond to raise between 500 million and 1 billion pounds, which could follow later in the summer.

The robustness of customer-owned financial services businesses has been under scrutiny since the Co-operative Bank was forced to agree a 1.5 billion pound rescue plan requiring its bondholders to take losses.

(Reporting by Matt Scuffham; Editing by Greg Mahlich)

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