* Regulator finalises capital requirements for RBS, Lloyds
* RBS, Lloyds say will not need to issue new equity
* Lloyds to raise 500 mln stg from St.James's Place sale
* IMF urges UK to get "clear strategy" on bank stake sales
* Shares in RBS, Lloyds rise over 2 pct
By Matt Scuffham and Steve Slater
LONDON, May 22 State-backed British lenders
Lloyds Banking Group and Royal Bank of Scotland
have agreed plans to shore up their capital with the financial
regulator, removing a barrier to the government offloading its
The regulator said on Wednesday it had finalised capital
requirements for the two banks and the lenders had submitted
their plans. Both banks said they did not need to issue new
equity and could raise the necessary capital by selling assets
and through their restructurings, which are already under way.
Lloyds moved quickly to plug part of its shortfall by
raising about 500 million pounds ($752 million) from the sale of
more of its stake in UK wealth manager St.James's Place.
The banks need to show they are robust enough to return to
private ownership after Britain pumped in a combined 66 billion
pounds ($100 billion) to rescue them during the 2008 financial
crisis. Both have since undertaken major overhauls under new
management, involving asset sales and job cuts.
The International Monetary Fund told Britain on Wednesday to
get a "clear strategy" on returning its Lloyds and RBS stakes
to private ownership and Finance Minister George Osborne said he
agreed, in one of his clearest statements of intent yet on
getting the banks off the government's books.
"Having refocused their business, now is the time for a
clear strategy on how to return RBS and Lloyds to the private
sector in a way that protects value for the taxpayer," he said.
Osborne indicated he would await the final recommendations
of the Parliamentary Commission on Banking Standards, due to be
made next month, before formulating plans.
Speculation that a sale of Lloyds shares may be imminent has
risen in recent weeks after the bank's shares passed the 61.2
pence level which the government regards as break-even on its
20.5 billion pound investment.
A sale of shares in RBS would appear to be further away with
taxpayers still sitting on a loss of over 5 billion pounds
following the bank's 45.8 billion bailout. However, the
government may consider other options such as a mass share
distribution to the public.
The Bank of England said in March that Britain's banks must
raise 25 billion pounds of extra capital by the end of the year
to absorb any future losses on loans and said the Prudential
Regulation Authority (PRA) would give banks specific guidance on
their capital position by the end of May.
Industry sources and analysts had identified Lloyds and RBS
as most likely to need extra capital. Lloyds was seen facing a
shortfall of up to 5 billion pounds and RBS as much as three
times that amount.
Neither the banks nor the PRA would confirm how much extra
capital the banks needed. Shares in Lloyds closed up 2.3 percent
at 63p and RBS gained 2.2 percent to 349.6p.
Lloyds, which is 39 percent-owned by the taxpayer, said it
would not need to issue new equity or so-called contingent
capital, which can convert into equity if a bank hits trouble.
It said after the market close it will sell 77 million
shares in St.James's Place, or a 15 percent stake in the firm,
which will cut its holding to 21 percent. It cannot sell those
shares for 180 days.
The sale will increase its common equity Tier 1 capital by
about 500 million pounds and add 0.16 percentage points to its
core capital adequacy ratio. The ratio was 8.1 percent at the
end of March under full Basel III rules and the bank said that
should rise to above 9 percent this year.
Lloyds, which was informed of the PRA's conclusions by
letter this week, has also hired advisers for the possible sale
of its Scottish Widows asset management arm, and said capital
will also be built by cash generated by its core business.
RBS, which is 81 percent-owned by taxpayers, has more to do.
The bank said it expected to improve its capital position
and meet regulatory requirements through its current business
plan. But it warned it would not be able to implement all of the
measures this year.
RBS is reducing the size of its investment bank, selling
non-core assets and plans to sell 20-25 percent of U.S. arm
Citizens in the next two years through a stock market flotation
in New York.
The PRA said it would release more information when it had
concluded discussions with all banks. The other major UK banks
are not expected to need capital and all generate significant
profits. HSBC and Standard Chartered are
regarded as among the best capitalised banks in the world and
Barclays and Santander UK have said they are
comfortable with their strength.
Britain's biggest customer-owned financial services group
Nationwide said on Wednesday it planned to raise a "few hundred
million" pounds in the next year to bolster its capital through
the issue of new loss-absorbing debt.