Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

Continue Reading

Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

Continue Reading

Property

Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

Continue Reading

Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

Continue Reading

Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

Continue Reading

Categorized | Banks

RBS emerges as biggest failure in BoE stress test


Posted on November 30, 2016

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn.

Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever modelled by the Bank of England, but they were judged to have sufficient capital-raising plans already in place.

The outright failure of RBS – partly caused by heavy litigation costs still hanging over the bank – underlines how it is still struggling to regain a stable footing eight years after being bailed out by the taxpayer in the financial crisis.

RBS presented its revised capital plan to the BoE overnight after the bank, which is 73 per cent owned by the state, suffered the second-highest ever percentage fall in capital under the stressed scenario after the Co-operative Bank in 2014.

Overall, the BoE said the results showed the banking system had continued to increase its overall levels of capital and came out of the stressed scenario with stronger balance sheets than in previous years.

RBS, however, was the only bank to fall below the minimum hurdle rate even after “assumed management actions” but before the presumed benefit of converting its loss-absorbing hybrid debt know as alternative tier one (AT1) securities.

In the stressed scenario, RBS’s common equity tier one ratio – a measure of capital to risk-weighted assets that is the main benchmark of banking strength – fell from 15.5 per cent to 5.9 per cent after management actions but before AT1 conversion. That is below its 6.6 per cent hurdle rate and its 7.3 per cent “systemic reference point” – a second, more stretching target set for systemically important banks.

“The stress test demonstrates that RBS remains susceptible to financial and economic stress,” the BoE said. “Based on RBS’s own asssessment of its resilience identified during the stress-testing process, RBS has already updated its capital plan to incoroporate further capital strengthening actions and this revised plan has been accepted by the PRA board.”

The BoE said Barclays and StanChart also fell below their hurdle rates before management actions and conversion of AT1 securities. But in Barclays case the regulator was confident that its capital plan – including selling much of its African subsidiary – would be enough to fix its shortfall. In StanChart’s case, it said the bank had recently issued AT1 securities that would resolve its shortfall.

Lloyds Banking Group, HSBC, Nationwide and Santander UK all passed the stress test, which the BoE said hit riskier corporate loans harder than residential mortgage books.

The BoE toughened the tests from the previous two years and introduced higher individual targets for each bank – including an extra hurdle rate for the most systemically important lenders – instead of a standard hurdle rate.

This year the test modelled the impact of a sharp contraction in Chinese and Hong Kong growth, with an overall 1.9 per cent contraction of the global economy, combined with the knock-on effect of emerging market currencies depreciating against the US dollar. It also examined the consequences of a 31 per cent in UK house prices over a five-year timeframe.

In a statement following the stress tests, StanChart said it had a “strong and liquid balance sheet”, with the overall results demonstrating the lender’s “resilience to a severe global stress scenario”.