Bank shares surge on relaxed plans for new rules

SHARES in UK banks rose strongly yesterday in reaction to watered down proposals for new international bank standards.

The planned new rules from the Basel Committee on Banking Supervision mean most banks will not have to raise significant amounts of new capital to prove their ability to cope with major losses.

They will also have more time to meet the standards under the so-called Basel III rules, with some only coming into force in 2018.

The changes by central bank governors were welcomed by the industry, although the new regime will still be far tougher than anything currently in place.

Shares in Royal Bank of Scotland rose by 3.6p, or 7.9 per cent, to close at 50.35p, while Lloyds was up 5.8p, or 8.8 per cent, at 71.8p and Barclays rose by 23.9p, or 7.6 per cent, to 339.5p.

The British Bankers' Association (BBA) broadly welcomed Basel's proposals but warned that the committee must strike the right balance between greater financial stability and allowing banks to play their full part in economic recovery.

Simon Hills, a director of the BBA, said: "There are some wins for us here - the more sensible treatment of minority interests and deferred tax assets, and recognition they have to do more work on the liquidity side of things.

"It introduces an element of certainty. One of the concerns we have had is while this was up in the air, we were unable to plan the shape of our balance sheet."

David Clark, chairman of the Wholesale Markets Brokers Association, said banks would now have fewer excuses not to help businesses.

"There is going to be a political consequence of all this. The banks will now be under a lot more moral pressure to lend."

Nomura analyst Jon Peace added in a note: "We see confirmation of the changes as a positive catalyst for the sector, especially following on from the European bank stress tests."

Investors won't know the full impact of Basel III until later in the year when the Basel Committee issues a figure for higher Tier 1 capital ratio, an indicator of a bank's strength and ability to absorb losses.

Shares in Lloyds and RBS are now just off their highest points of the year, a rise which will be welcomed by the government as it moves towards disposing of its stakes.

The average price paid by the taxpayer for RBS shares during the bailout was 50p, although the issue is complicated by the fact that some of the shares are "B" shares which have preferential status for dividend payments.

The effective cost to the taxpayer of Lloyds shares was 63.2p each.

Earlier this month investment banker Jim O'Neil was appointed to head up the sale of the stakes in the two banks.

The veteran Merrill Lynch executive will join UK Financial Investments, which manages the taxpayer-owned shareholdings, later this year.