Euro banks facing capital shortfall
Source: Agencies |
June 28, 2011, Tuesday
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Print Edition
Print Edition
EUROPE'S banks may need to raise tens of billions of euros after regulators slapped an extra capital surcharge on big lenders to make them safer, and told them they could not use contingent capital for the extra cushion.
Banks in France and Germany may be most in need, adding to fears their capital could be strained by losses on holdings of Greek bonds and loans to the troubled eurozone country.
A surcharge of between 1 percent and 2.5 percent for the biggest banks agreed by global regulators at the weekend was in line with or slightly less than expectations.
But the exclusion of contingent capital (CoCos) to reach the higher target will be a disappointment to many banks and investors, analysts said.
"The quid pro quo of a lower charge (than expected) appears to be the fact that CoCos cannot be used toward the surcharge - it must be made entirely of equity capital," said Andrew Lim, analyst at Espirito Santo.
Not allowing CoCos will be an unwelcome surprise for those managers and investors who had seen them as the solution to recapitalizing the sector, said Antonio Guglielmi, analyst at Mediobanca. "The buffer should trigger a final wave of rights issues," Guglielmi said in a note yesterday, estimating a 62-billion euro (US$88.8 billion) capital shortfall shared between BNP Paribas, Societe Generale, Credit Agricole, Santander, Credit Suisse, Deutsche Bank and UniCredit.
To meet the new standards Deutsche Bank needs more than 12 billion euros, HSBC needs US$14 billion and Credit Agricole, Credit Suisse and SocGen each have a capital deficit of about 7 billion euros, Lim estimated.
The big French and German banks are already under pressure due to their bigger exposure to Greece than banks elsewhere. Losses there could force some capital raisings, analysts said.
A French banking source said on Sunday the French Treasury had reached a deal with banks to make a voluntary rollover of sovereign debt holdings more palatable.
The new rules, which need to be agreed by G20 leaders in November, should finalize capital requirements after years of wrangling. As a result, it could be a positive step for the industry and give investors greater confidence, several analysts said.
The surcharge will add to a 7 percent minimum capital standard and is part of a series of regulatory reforms launched in response to the financial crisis to make the system safer and prevent the need for taxpayer bailouts.
Banks have until 2016/2018 to start implementing the rules, although in practice they are expected to have the capital in place by next year or 2013 to reassure investors.
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