Banks ask for their money back

By Steve Slater

LONDON (Reuters) - Not long ago many British banks were spending billions of pounds of "surplus" cash buying back their shares. Now some are asking for their money back.

Britain's banks spent over 5.6 billion pounds buying back their shares in the last three years as they ran lean balance sheets and were often accused of being inefficient if they held onto more cash than the minimum needed.

The credit crunch put a stop to that.

News that Royal Bank of Scotland (RBS.L) and HBOS HBOS.L are asking shareholders for 16 billion pounds to rebuild their balance sheets shows how far financial markets have shifted and sentiment has reversed.

It has prompted speculation that other banks, notably Barclays (BARC.L), Alliance & Leicester ALLL.L and Bradford & Bingley BB.L could also tap investors for funds.

Big writedowns on the value of risky assets and the prospect of slow economic and earnings growth has left banks under pressure from regulators and investors to build up a bigger capital cushion as protection against future shocks.

"The UK banks were running with balance sheets that were geared for a world that rewarded leverage, and (where) liquidity was plentiful. That's changed, so they now have to adjust," said Leigh Goodwin, bank analyst at Fox-Pitt, Kelton.

"Where there were buybacks they could be justified at the time. Investors were saying, 'Give us the capital back as you've got more than you need'," Goodwin added.