Top four UK lenders face £37bn shortfall, says JP Morgan

American investment bank JP Morgan warns that the UK’s four largest lenders face a combined capital shortfall of £37bn, with earnings shrinking by up to 35% if they do not confront the losses.

In a research note issued to clients Carla Antunes da Silva, analyst at JP Morgan, estimated that Royal Bank of Scotland faces a shortfall of £13bn.

She says HBOS faces a deficit of £11bn, Barclays around £8bn and Lloyds TSB about £4bn.

The note says that if the four banks do not recapitalise, they will be forced to scale back their lending, leading to a 25%-35% decline in combined earnings.

Da Silva says RBS is likely to be contemplating other capital-conserving strategies such as paying dividends in shares rather than cash, and selling a stake in itself to a strategic partner.