RBS Shares Fall as Bank Fails Stress Test

The Prudential Regulation Authority announced that three banks – RBS, Barclays, and Standard Chartered – need further capital measures to be adequately capitalised

Derya Guzel 30 November, 2016 | 4:42PM

The Bank of England on November 30 released the results of its stress test of the U.K. banking system for 2016, which was conducted under harsher conditions than the 2014-15 stress test. Under these measures, the Prudential Regulation Authority announced that three banks – Royal Bank of Scotland (RBS), Barclays (BARC), and Standard Chartered (STAN) – need further capital measures to be adequately capitalised.

However, we believe only Royal Bank of Scotland might need to undertake additional capital-strengthening measures, which could include further Tier 1 debt issuance as well as the rapid sale of Williams & Glyn.

Standard Chartered already addressed the issues earlier this year with Tier 1 debt issuances, and Barclays has announced a plan to sell its shareholding in Barclays Africa as well as Tier 1 debt issuance. The test results showed that HSBC (HSBA), Lloyds Banking Group (LLOY), Nationwide Building Society, and Santander UK had sufficient capital levels under the severe stress testing. We do not plan to change our fair value estimates or moat ratings for the U.K. banks.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC81.97 GBX0.42
HSBC Holdings PLC396.60 GBX-0.29
Standard Chartered PLC398.90 GBX0.13
The Royal Bank of Scotland Group PLC103.35 GBX-1.05

About Author

Derya Guzel  is an Equity Analyst for Morningstar

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