Barclays breezed through the European Banking Authority’s stress test. The bigger challenge lies at home.
Bloomberg News reports that under new Bank of England draft rules to be announced this week, Barclays is expected to have the largest capital shortfall among the U.K.’s major lenders, according to analysts at Morgan Stanley, Deutsche Bank and Sanford C. Bernstein. That could threaten Barclays’s plans to raise its dividend, require it to shrink its investment bank or speed up asset sales, the analysts said.
The BOE is preparing a much broader measure than the EBA used, focusing on banks’ leverage ratio, or how much equity capital they must hold against their assets. That could be particularly difficult for Barclays Chief Executive Officer Antony Jenkins because the leverage ratio doesn’t let banks weight their assets according to risk to reduce their capital needs. Its investment bank, which historically has generated a greater percentage of Barclays’s profit than its peers, is affected by this in a way that other U.K. lenders aren’t.
'Barclays appears more likely to be constrained by the leverage ratio' than other U.K. banks, said Chris Manners, an analyst at Morgan Stanley who has an equal-weight recommendation on the stock. 'If capital requirements are harsher than expected, it could lead to faster risk-weighted asset shedding and impact on revenue or lower dividends.'
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