Royal Bank of Scotland (RBS) has failed the Bank of England's latest - and toughest - stress tests Wednesday, with the taxpayer-owned lender also revealing a new plan of asset sales and cost cuts to shore up it balance sheet.
The BoE's Prudential Regulation Authority (PRA) tested seven 'systemically important' U.K. lenders and said it found capital inadequacies in three - RBS, Barlcays (BCS) and Standard Chartered (STAN) - that required further measures from management. The other four banks tested, HSBC (HSBC) , Lloyds Banking Group (LYG) , Nationwide Building Society and Santander UK (SAN) , cleared both hurdles set by the BoE based on their 2015 balance sheets.
"The stress test demonstrates that RBS remains susceptible to financial and economic stress," the BoE said. "This assessment includes stressed projections of misconduct costs. RBS faces a range of costs and risks over the projected period, as it continues to execute its strategy to reshape its balance sheet."
RBS, which is 73%-owned by the British taxpayer, said the tests revealed that, under an adverse scenario in the tests, its leverage ratio would have been at 2.7%, which is 3 basis points below the BoE's hurdle rate and 5 basis points below the "systemic reference point" minimum, a reflection of the new and more robust examination the BoE used to assess the country's biggest and most important lenders.
"RBS intends to execute an array of capital management actions to supplement the organic capital generation from its core franchises and further improve its stress resilience," the bank said in a statement released alongside the BoE tests. "RBS expects its revised capital plan to address the shortfall identified in today's stress test results. However, additional management actions may be required until RBS's balance sheet is sufficiently resilient to stressed scenarios."
The BoE said that Barclays and Standard Chartered missed some of its key test thresholds, but noted that capital plans that were already in place would be sufficient to address and concerns over shortfalls.
RBS shares fell 2.8% at the start of trading Wednesday, changing hands at 191.11 pence each and extending the year-to-date decline for the struggling lender to nearly 38%.