Reuters/London/Madrid


The logo of Spanish bank Santander is seen outside a building in Madrid yesterday. The eurozone’s largest bank said it would meet the new capital requirements without carrying out a capital increase and without cutting dividends. Politicians told banks to find €106bn ($146bn) in new capital by the end of June to shore up their balance sheets—part of a plan to restore confidence in the sector and halt a eurozone debt crisis from spreading
Dividend and bonus cuts, profits, and aid from the IMF will provide most of the new capital Europe’s banks need after the eurozone deal struck overnight, leaving them as little as €20bn to find from investors.
Politicians told banks to find €106bn ($146bn) in new capital by the end of June to shore up their balance sheets—part of a plan to restore confidence in the sector and halt a eurozone debt crisis from spreading.
News of the agreed plan, and comments from major banks that they can meet shortfalls without outside help, sent banks shares soaring over 9% yesterday for their strongest one-day climb in more than two years.
After tense talks that began on Wednesday and ran into the early hours, private sector investors also agreed to halve the value of their Greek government debt holdings—taking a collective €103bn hit—which marked a breakthrough for EU leaders.
“It’s short on detail but it’s progress,” said Simon Maughan, head of trading for Europe at MF Global.
“There’s a fairly defined timeline to deal with this. The banks have to raise all of the money by the end of June, so they’ve got to get on with it,” he added.
Banks in Spain, Italy, France, Portugal, Greece and beyond were told they need to recapitalise to be able to better withstand eurozone sovereign bond losses and an economic downturn.
But of the sum needed, €30bn is already being provided to Greek banks under an International Monetary Fund (IMF) aid plan, and Portugal’s banks, which need €7.8bn, can also tap an IMF aid package.
Belgium’s Dexia and Austria’s Volksbanken need almost €7bn combined but are already getting government help.
Spain’s Santander can meet €8.5bn of its capital need with an existing convertible bond.
Asset sales and debt liability management plans will provide further cash. Some deleveraging (reduced lending) - as long as it is not what the European Banking Authority (EBA) deems “excessive”—will lift capital ratios further.
With retained earnings and dividend cuts banks could need to raise less than 30bn euros from investors, bankers said.
Credit Suisse analysts put the figure as low as €20bn, after allowing for €25bn from earnings and the saving of €6bn on dividends.
Still, with European bank shares trading at an average 0.6 times book value, any capital raising would be painfully dilutive.
The €106bn total required was in line with expectations, though Spanish banks need more than many analysts’ forecast, at €26bn.
Santander said its capital shortfall is €15bn, or €6.5bn after the convertible bond benefit. Peer BBVA needs €7.1bn and Banco Popular needs €2.4bn.
Even so, analysts said the exercise had failed to address the root cause of Spanish banks’ capital needs—their hefty exposure to toxic real estate assets.
“Our main concern remains about the pending clean-up of the real estate and developer exposure for Spanish banks, which requires an additional recap of up to €45bn,” said Francisco Riquel, analyst at N+1 Equities.
“We doubt that debt markets will open up for Spanish banks at reasonable prices, and we thus expect the credit crunch to accelerate.”
The EBA said it would help re-open the medium-term funding market for banks which have been shut out, putting in place a public guarantee scheme. But again, there were few details.
Seventy banks were tested under the recapitalisation plan. The EBA did not break down how much each lender needs, leaving that to the banks and national regulators.
France’s BNP Paribas requires €2.1bn, Societe Generale needs €3.3bn and BPCE, the mutual that owns Natixis, is in need of €3.4bn.
Germany’s Commerzbank needs €2.9bn and Deutsche Bank is expected to need €1.2bn. Italy’s UniCredit could need near €5bn euros.
Sweden’s Handelsbanken and Swedbank need to raise a combined €1.3bn, hurt by a greater risk weighting applied to their mortgage portfolios.
“We want to see a combination of measures. We don’t want to just see that measures taken are, for example, reducing lending,” said Martin Noreus, the head of large bank supervision at Sweden’s financial regulator.