Despite some analysts having called a nine-month timeline for raising billions in new funds “unrealistic”, lenders are determined to appear unruffled.
Yesterday, the European Banking Authority (EBA) unveiled preliminary results of the stress tests it is conducting on EU banks, which called for total new capital of €106bn (£93.4bn) conditional on a 50 per cent haircut on banks’ holdings of Greek debt.
The lion’s share of that will have to be found by Greek and Spanish banks. Greece’s main lenders have to raise €30bn as a result of holding billions in Athens’ debt. But Spain’s banks were also deemed to be drastically undercapitalised: its top five need to find €26bn, with many of its other lenders having already been nationalised.
BBVA is the worst hit: it has to raise €7.01bn, but insisted it can generate €4.7bn of that purely through profits.
France’s banks were told to raise €8.8bn, with only Credit Agricole deemed to have enough capital.
BNP Paribas said it will not need to do a rights issue to raise its €2.1bn, while Société Générale did not rule out tapping markets but said it would not need public funds to find €3.3bn.
Both SocGen and BNP Paribas will speed up their effort to offload non-core assets to meet the target.
Germany’s Commerzbank said it would not need to tap public funds to raise its required €2.9bn.
Banks that do have to tap markets could find it difficult to persuade investors to stump up the cash given ongoing Eurozone risks, plunging share prices and low dividends.
And one intriguing detail was left unexplained: the EBA appeared to suggest that contingent convertible bonds (cocos, which turn into equity if a bank’s reserves drop too low) will be an acceptable form of capital.
The Basel Committee rejected cocos earlier this year, but they have been endorsed by Swiss regulators and could now be adopted by the EU.