Europe’s banks close in on new capital targets

Tim Wallace
Follow Tim
EUROPEAN banks successfully raised capital levels substantially over the first six months of this year, putting almost all of them in a better position to face the Eurozone crisis, the European Banking Authority (EBA) confirmed yesterday.

But it also insisted its nine per cent capital ratio rule will be maintained indefinitely, hitting hopes the expensive requirement would be loosened.

The 71 banks studied raised a total of €205bn (£164.6bn) from December 2011 to June 2012.

And the 27 banks which previously had too little capital raised €115.7bn, taking almost all of them up to the nine per cent level, with an average of 9.7 per cent.

Some banks – such as those in Greece, and Spain’s Bankia – have already gone into restructuring programmes and so were excluded from the list. But four remain which the EBA said need more help – Cyprus Popular Bank, Bank of Cyprus, Italy’s Banca Monte Dei Paschi Di Siena, and the Slovenian Nova KBM which aims to privately plug its gap by the end of this year.

Spain’s Banco Popular has met the rules under normal conditions after improving its position by €2.5bn since September 2011, but would be €3.2bn short in a “stressed” scenario.

As a result the bank has agreed to put together a plan to show how it will cope if the conditions worsen further.

But law firm Eversheds warned the report may give a falsely positive view of the industry as a whole, as the banks involved have been subjected to tougher requirements than others.

“The subject banks were required to raise the extra capital that they would need if they were required to value sovereign debt holdings on a realistic basis, but this requirement has not been applied to the rest of the EU banking sector,” said partner Michael Wainwright.

“In addition, detailed supervision of the exercise was carried out by national regulators and, where a bank failed the test, the relevant government was required to guarantee to provide the necessary capital – perhaps giving an incentive to fudge the numbers.”