Debt Worries Knock Top UK Banks' Shares
PRESS ASSOCIATION -- Worries about the impact of the European debt crisis has knocked the UK's top four banks again, even though all passed last week's European stress test.
Shares in Barclays, HSBC, Lloyds Banking and Royal Bank of Scotland all fell as analysts said the tests did not take into account the full likelihood of a Greek debt default.
The four were among 90 banks tested by the European Banking Authority to assess how their finances could stand up to lower growth, lower stock markets and higher interest rates. Only eight of the 90 banks tested failed, though a further 16 only scraped through.
Royal Bank of Scotland scored lowest of the UK banks at 6.3%, though still well above the pass mark of 5% for an acceptable level of core tier one capital, a key measure of a bank's strength. Barclays held 7.3% tier one capital, HSBC had 8.5% and Lloyds Banking Group held 7.7%.
The tests assumed a 25% write-down on 10-year Greek government bonds held by Europe's banks, but analysts suggested this was too generous as market prices currently stand at a 50% mark-down.
Broker JP Morgan added that if stricter criteria of 7% capital and more significant write-downs on holding of sovereign debt were included, UK banks would have had a £22 billion (25 billion euro) shortfall.
Yields on Italian and Spanish bonds rose further, suggesting the stress tests had done little to allay the fears of debt contagion.
On Thursday, European Union leaders meet to discuss financial stability in the eurozone and a second bailout for Greece.
Shares in Barclays and Royal Bank of Scotland both fell by 3%, to 216p and 34p respectively, Lloyds gave up 2% at 43.7p while HSBC dropped 1% to 596p.
See Also: Eurozone default could trigger Lehmans-style crisis (Guardian)