Badly needed austerity will now also hit the banks, reports the Telegraph, quoting from a Nomura presentation. As the government will not replace £190 billion in Special Loan Schemes by 2012, banks will need to raise altogether £390 billion or more than £30 billion a month in 2011.
This means British banks face higher financing needs than their competitors in the EU. While Spain's commercial banks have scrambled for ECB liquidity as there is a serious drought in interbank-lending in the Eurozone it has to be wondered who will come to the rescue of the UK which does not participate in the €750 billion umbrella to defend the Eurozone.
From the Telegraph:
Nomura analysts in a presentation yesterday, pointed to last month's Bank of England Financial Stability Report (FSR) as they warned of the funding crunch facing the UK's major banks.
While the banks of other major European countries, such as France, Germany and Italy, face their own funding issues next year, none has to refinance anything like the same amount as the UK banks, which must replace debt worth just over 200pc of the average raised in the years 2005 to 2007.
"UK banks face significant refinancing requirements over the next few years, as funds raised prior to the credit crisis mature," said Robert Law, co-head of banking research at Nomura.
"Lloyds and RBS are undertaking substantial medium-term restructuring of their balance sheets. This target includes targets to reduce assets in nominal terms over five years.
"In our view, this restructuring is partly aimed at managing their refinancing requirements, as well as reducing wholesale funding an particularly the proportion of short-term financing within that."
Of the £390bn that must be raised next year, about £200bn will be in the form of maturing bonds and residential-backed mortgage securities that will require refinancing.
The remaining £190bn consists of Government funding programmes; the Credit Guarantee Scheme; and the Special Liquidity Scheme, which the Bank of England insists will be phased out by the end of 2012.
Mr Laws at Nomura is sceptical that Britain's banks will be able to wean themselves off Government support so quickly, but concedes that the authorities cannot let up the pressure on UK financial institutions to become fully-privately funded.
In the FSR the Bank of England admitted that replacing all this funding would be a "substantial challenge", and put the total figure on the amount that UK banks need to refinance by the end of 2012 at between £750bn and £800bn, working out an average monthly fundraising rate for the next two and a half years of more than £25bn.
This is double the fund raising rate for the years between 2001 and 2007 of £12bn.Attention: The pound may have held up surprisingly well. But this British disaster in the making will affect the British currency heavily in the medium term.