The European Banking Authority said Europe’s banks will need to raise 114.7 billion euros in fresh capital as part of measures introduced to respond to the sovereign debt crisis. The new figure is over 8 billion euros more than previously estimated by the EBA in October.
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German banks need to raise 13.1 billion euros and Italian banks need 15.4 billion euros in core tier 1 capital, according to an EBA document. Two months ago, the EBA estimated that the region’s financial institutions needed 106 billion euros to reach the 9 percent core Tier 1 capital goal by mid-2012, after marking their sovereign bonds to match market prices.
“This must come as a bit of a relief as some people had been expecting the amount of new capital required to double,” said Neil Smith, a banking analyst at WestLB AG in Dusseldorf, Germany. European leaders are demanding banks bolster capital to withstand writedowns after they agreed to shoulder a 50 percent loss on Greek bonds.
“The objective of the capital exercise is to create an exceptional and temporary capital buffer to address current market concerns over sovereign risk and other residual credit risk,” the EBA said in a report on its website. The report takes into account banks’ sovereign holdings through the end of September in calculating updated figures. The EBA used June data in its October estimates.
Among lenders needing to bolster their reserves are: Banco Santander (NYSE:STD), which said it needs to raise 15.3 billion euros; Deutsche Bank (NYSE:DB), which needs 3.2 billion euros; Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), which missed the target by 6.33 billion euros; BNP Paribas, with a 1.5 billion-euro shortfall; Societe Generale, which needs 2.1 billion euros; and Commerzbank AG, which needs 5.3 billion euros to meet the target.
The EBA asked German lenders to boost their capital levels by more than twice the original 5.2 billion-euro estimate for the country’s banks in October. French banks will have to raise 7.3 billion euros, nearly five times an earlier estimate of 1.5 billion euros.
The EBA has given banks more time to submit their plans for raising the money, pushing back a December 25 deadline to January 20. “These plans will have to be agreed with national authorities and reviewed, shared and consulted on with the EBA and with other relevant competent authorities within colleges of supervisors as appropriate,” the agency said.
The EBA rejected calls to extend the deadline until June 30. Italian lenders asked for more time to raise the capital. Regulators won’t allow banks to cut lending to companies in order to meet the capital requirements, but said lenders should look instead to bolster their reserves by steps such as cutting bonuses, retaining earnings, or issuing shares. They will also be allowed to issue so-called contingent capital instruments if they satisfy a series of conditions set by the EBA.