London Scottish Bank To Seek Cash Injection On Advice From FSA

by Amanda Banks, Tax-News.com, London

02 January 2008

London Scottish Bank plc (LSB), the speciality provider of financial services, has announced this week that it intends to increase impairment provisions against certain customer account balances in arrears to reflect its latest experience of the recoverable amounts of those accounts.

The accounts involved are predominantly in the unsecured consumer credit branch business, which has been undergoing significant rationalisation during the last two years, and are both home collected and direct paying.

The increased impairment provisions will be incorporated in the financial statements for the year ended 31 October 2007 and, as a consequence, the results for that year are expected to be affected by additional impairment charges to the profit and loss account of up to £22m before tax.

As part of the transition to the new Basel II regime, LSB has been advised by the Financial Services Authority that the Company must adopt an interim Individual Capital Guidance with effect from 1 January 2008.

An ICG specifies the amount of regulatory capital that a bank must hold. The interim ICG will apply to the Company until such time as the Company has submitted its revised assessment of the required capital and the FSA has set a formal ICG.

The interim ICG will result in the Company being required to hold significantly more regulatory capital than under the Basel I regime.

The combination of the Company being required to hold additional regulatory capital together with the impact of the additional impairment provisions, referred to above, will result in a shortfall of regulatory capital as 1 January 2008 of approximately GBP13m.

The directors consider that the Company continues to have a strong balance sheet, enhanced by the disposal of its leasing business and head office freehold premises during the last 9 months. Furthermore, the Company continues to comply with all the covenants in its banking agreements. The Company will submit, to the FSA, the necessary capital adequacy assessment, during the forthcoming months, so that the FSA can set a formal ICG.

The Company will commence discussions with the FSA this week about actions the Company plans to take to address the shortfall in regulatory capital.

However, until the Company has remedied the shortfall of regulatory capital, it may have to restrict new lending volumes and may be unable to pay a final dividend in respect of the year ended 31 October 2007.

Further details on both the above matters will be provided in the Company's Preliminary Announcement of its results for the year ended 31 October 2007, which is expected to be released on 23 January 2008.

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