Credit Suisse reckons Barclays could do with £6bn of capital and HBOS £4.5bn, compared with the £12bn it says RBS needs.

Credit Suisse reckons Barclays could do with £6bn of capital and HBOS £4.5bn, compared with the £12bn it says RBS needs.Political pressure for the banks to strengthen their finances, as a "quid pro quo" for the £50bn-£100bn of liquidity support the Government is planning, might tip the scales. Both HBOS and Barclays have been in contact with regulators about their capital positions.With sub-prime provisions worsening and bad debts on UK mortgages certain to rise as house prices stumble and mortgage costs soar, the banks have been told they need to be in as strong a position as possible.Analysts have given up trying to predict the level of new sub-prime provisions, but they claim UK banks have been more optimistic than US peers in their assumptions to date. Britain's banks are all expected to reveal further, significant writedowns that erode the capital base in the coming weeks.
With less capital, the financial position of the bank weakens - jeopardising growth prospects at the very least and raising the prospect of regulatory intervention in the worst case scenario. Barclays and HBOS have the weakest capital positions after RBS. Barclays, in particular, is exposed to worsening sub-prime conditions that threaten its capital.For them, the issue may be whether to sell assets or to go to shareholders. As is thought to be the case with RBS, a rights issue would be accompanied by a dividend cut, making it a far less attractive option. But the scale of the funds Credit Suisse estimates the two lenders require would suggest they have little choice.Alliance & Leicester and Bradford & Bingley are considered next at risk. Although B&B has a strong capital position, analysts expect its mortgage bad debts to mount rapidly as it is a specialist in buy-to-let and self-certification, areas of the market considered higher risk.Being smaller lenders, both are also likely to find it more difficult to raise new funds at affordable levels as the credit crunch slowly plays out. UBS analyst Alastair Ryan said: "For the foreseeable future, these companies are likely to see volumes declining. As we anticipate bad debts rising, this leaves profits on the wane." With profits falling, he believes they will be obliged to cut the dividend - by 37pc at A&L and 19pc at B&B.capital restoration measures would normally put management under pressure, but Mr Ryan believes the exceptional and sudden deterioration in the credit markets provides an excuse for British executives."We don't believe cutting the dividend would be taken as an indictment of management by shareholders," he said. "It would be demonstrable that market conditions were the driver of the cuts, and management teams could expect to remain in place."Not all of Britain's banks are in trouble. HSBC is well capitalised and flush with liquidity, as is the Asian markets specialist Standard Chartered. Lloyds TSB sits somewhere in-between.Although it has a relatively strong capital position, it may have to abandon its recently renewed progressive dividend policy because its dividend cover is the lowest in the industry. Profits are expected to slide due to the higher cost of funding and Lloyds cannot afford to eat into capital to pay out an increasing dividend. Although a cut does not appear to be on the cards, Lloyds may have to revert to its policy of the previous five years - leaving the dividend unchanged.