Boost for investors in bank shake-up

MORTGAGE lenders will be big winners from new international banking rules and could pass the gains on to shareholders in windfall payouts, say leading analysts.

Top of the list of potential winners could be HBoS - the UK's biggest mortgage lender - but other gainers could be Royal Bank of Scotland, Alliance & Leicester and Northern Rock.

The new banking rules, known as Basel II, are being drawn up by an international committee that meets in the Swiss city. They will change the way banks calculate the cash they set aside to tackle a lending crisis, such as borrowers defaulting on loans.

Research carried out separately by Swiss banking giant UBS and small British investment bank Fox-Pitt Kelton both argue that the new rules will dramatically favour mortgage lenders, allowing them to release millions of pounds at present set aside for a rainy day.

Christopher Ellerton, banking analyst at UBS, said: 'Mortgage banks will all see a decline in their capital requirements. They can do three things with the cash.

'They can sit on it, which won't please shareholders, or make acquisitions, which might please shareholders if they buy at the right price. Or they can return it to shareholders by buying shares or raising dividends, and that is what I would expect.'

Banking rules established in 1988, known as Basel I, also set out how much cash should be set aside by banks against their loans.

The new rules should be more precise, requiring higher amounts to be set aside when the loan is to a riskier borrower and allowing lower amounts against relatively safe borrowers.

The Basel II plans have yet to be finalised, but are due to come into effect in four years. UBS's research suggests that almost all UK High Street banks would, on balance, either win or be unaffected by the changes.