EU Banks Told to Boost Capital Cushion
Europe's banks must increase their capital by 114.7 billion euros, more than predicted two months ago, to make them strong enough to withstand the euro zone debt crisis and restore investor confidence, Europe's banking watchdog said on Thursday.
Confirming an earlier Reuters story, the European Banking Authority (EBA) said the capital shortfall across 71 banks was almost 8 percent higher than the 106.4 billion euros ($142 billion) estimated in October due to increases for banks in Germany, Italy, Austria and Belgium.
Banks will look to fill any shortfall by raising cash from rights issues, shrinking loans to customers, selling assets or cutting dividends or pay for staff. National governments may have to bail out any lender unable to find the cash.
German banks need to find 13.1 billion euros, more than double the 5.2 billion estimated in October, the EBA said. Commerzbank needs 5.3 billion euros and Deutsche Bank needs 3.2 billion.
Spanish banks need to find an unchanged 26.2 billion euros, including 15.3 billion at Santander and 6.3 billion at BBVA.
In all, some 31 of 71 EU banks tested need extra capital, and they have until Jan. 20 to present their plans for recapitalisation and need to fulfill the capital requirements by end-June, the EBA said.
The EBA's recapitalisation plan is part of a three-pronged approach that also deals with sovereign debt exposures and improving funding guarantees. The aim is to restore confidence without crimping lending in a fragile economy.
The European Central Bank on Thursday said it would start offering banks funding for 3 years for the first time ever, to try to head of a credit crunch.
EU leaders will meet later on Thursday in a high-stakes summit aimed at agreeing a plan to defuse the crisis, with France and Germany pushing for rule changes to stricter budget discipline in the bloc.
NOT MANY CASHCALLS?
The EBA said banks should have core Tier 1 capital of at least 9 percent of risk-weighted assets, which exceeds the 7 percent minimum world leaders have agreed to phase in from 2013.
Banks may need to tap shareholders for less than 30 billion euros to plug the hole, analysts have estimated.
Greek banks have been told they need an extra 30 billion euros of capital, but this should be covered by an existing programme of aid, while 9 billion euros of the shortfall in Spain will be met by debt that converts into equity.
BNP Paribas, Societe Generale, UniCredit , Commerzbank and other banks are reducing loans, an alternative to raising equity, which is costly at present due to depressed share prices.
But that has sparked fears this tighter credit will hurt economic recovery. Europe's banks could "deleverage" by up to 3 trillion euros in the next two years, or by 4.5 trillion euros over the next 5-6 years, analysts at Morgan Stanley estimate.
The EBA said it would try to limit how much deleveraging banks can do to meet targets, saying they should first try to raise funds, retain earnings, reduce bonus payments and other liability management measures.
Banks in France will need 7.3 billion euros, down from 8.8 billion in October and banks in Italy will need 15.4 billion euros up from 14.8 billion. Austrian banks need 3.9 billion euros up from 2.9 billion and Belgian banks need 6.3 billion up from 4.1 billion. British banks, as previously, do not need any extra capital.