25th Jun 2014 12:27
LONDON (Alliance News) - The US units of HSBC Holdings PLC and Royal Bank of Scotland Group PLC have been blocked from increasing any capital distributions they make to the parent companies until at least 2015, after the banks asked for extensions to the deadlines by which they have to submit revised capital plans to the US Federal Reserve.
The Fed had previously said it was unhappy with the plans for governance and internal controls at the units and had demanded improvements. The block on increasing capital distributions also impacts the US's Citigroup Inc and Spain's Banco Santander SA, which also requested the extension.
In a statement Tuesday, the Federal Reserve said the four banks will not have to re-submit the capital plans until January 5, 2015, the due date for the next round of annual plans. The original deadline had been set for Thursday.
"The extensions will give the firms additional time to address the capital planning weaknesses identified by the Federal Reserve. The firms will not be able to increase their capital distributions until a new capital plan is approved," the Federal Reserve said in a statement.
The capital plans were reviewed as part of the Fed's 2014 comprehensive capital analysis and review, an annual exercise designed to ensure that large financial institutions have robust capital-planning processes that account for their risks, and to help ensure that they have sufficient capital to continue operations throughout times of economic and financial stress.
In March, the Fed said that both HSBC North America and RBS Citizens had significant deficiencies in their capital planning processes, including "inadequate governance and weak internal controls around the processes."
RBS is preparing for the sale of its Citizens unit, which in May revealed plans to raise up to USD100 million in an initial public offering in the US. In November 2013, RBS had announced that it would accelerate the divestment of Citizens with a partial IPO and that it planned to fully divest the business by the end of 2016.
The Fed is able to require a new capital plan from an institution outside of its annual review at any time if there is a "material change" in the condition of an individual institution or in the economy or financial markets that could potentially weaken an institution's capital position.
HSBC shares were Wednesday quoted at 604.10 pence, down 0.2%, while RBS shares were quoted at 323.40 pence, down 1.3%.
By Samuel Agini; [email protected]; @samuelagini
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