The Strategist

UK watchdog easens regulations for Lloyds

05/02/2019 - 03:51

The organization was able to free up about a billion pounds. Information about this has become a driver for the growth of bank shares.

Shares of Lloyds Banking Group rose by 1.7% at the start of trading on May 1st. The growth was triggered by the information about the decision of the Bank of England to soften requirements for the credit institution, which allowed it to free up about £ 1 billion.

An analysis conducted by the Prudential Regulation Authority set a lower rate for the Lloyds "systemic risk buffer" - a special capital requirement designed to strengthen retail banks.

The credit organization commented on decision of the regulator to the Financial Times, noting that lowering of the bar, happened after checking the bank’s balance sheet, reflected the bank’s "stronger and safer" position.

The last reduction occurred in addition to the earlier decrease in capital requirements last year. As a result, the bank announced that it would reduce the target rate of the first level of total capital by 0.5%, which is equivalent to about £ 1 billion.

"This is simple math. Other things being equal, there will be a one-time increase in the buyback value of Lloyds 2020 shares by £ 1 billion, which is about 2.25% of market capitalization. Great news!" - commented on the situation Investec analyst Ian Gordon.

At the same time, the press service of the Lloyds Financial Times said that the bank "will continue to consider the issue of the distribution of excess capital among shareholders at the end of the year, and will continue to look for ways to use its position in the interests of its customers."

The organization noted that 0.5 percentage point was less than the cumulative effect of the two changes in legislation, which means that it still had a more powerful buffer than was required.

The positive news came the day before Lloyds had to publish the results for the first quarter. Several of its competitors have already reported a difficult beginning of the year in the UK retail banking market, but Lloyds has so far managed to avoid the worst.

In March, the British regulator demanded an increase in the liquidity of banks on the eve of Brexit, and with respect to some banks, the requirements tripled. They touched Barclays, the Royal Bank of Scotland and several other big players.