Fitch Says Global Banks May Need $556B
The world's top 29 banks may need a total $556 billion to meet tougher new capital rules, cutting returns by a fifth and forcing them to curb investor payouts and raise customer charges, Fitch Ratings said on Thursday.
The credit rating agency studied 29 banks named by world leaders (G20) as being globally systemically important financial institutions (G-SIFI) and required to hold core capital buffers of up to 9.5 percent by the start of 2019.
The list includes Barclays, Deutsche Bank , Goldman Sachs, HSBC, JPMorgan Chase , and UBS.
Fitch said the banks represented $47 trillion in assets and may need to raise $566 billion common equity to hit core ratios of around 10 percent to satisfy new global Basel III requirements being phased in over several years from January.
"Banks will likely pursue a mix of strategies to address these shortfalls, including retention of future earnings, equity issuance, and reducing risk-weighted assets," Fitch said.
Return on equity (ROE), a key indicator of profitability, could fall from a median 11 percent seen in recent years to about 8-9 percent under the new capital regime, Fitch said.
This would be below the average cost of equity, put at 10-11 percent by analysts.
"For banks that continue to pursue mid-teen ROE targets, for example 12-15 percent, Basel III creates potential incentives to reduce expenses further and to increase pricing on borrowers and customers where feasible," Fitch said.
HSBC said on Thursday it had an ROE near 11 percent in the first quarter, below the 12 percent target it set itself a year ago.
Fitch said banks could also seek riskier activities to bump up ROEs.
While banks have until the start of 2019 to meet Basel III requirements, many lenders will comply earlier due to investor and market pressures, Fitch said.
A typical bank would be able to meet its capital shortfall by retaining earnings for three years, it estimated.