Investor’s took confidence as European bank (NYSE:KBE) shares continued to rally Wednesday, seeing solutions for Europe’s debt crisis starting to come to fruition. Analysts warned however that a new round of recapitalizations could dilute shareholders and result in governments holding large chunks of the banking sector.
The STOXX Europe 600 banking closed up at 2.9%, as Barclays PLC (NYSE:BCS) rose 6.4%. France’s Societe Generale SA (GLE.FR) and the BNP Paribas SA (BNP.FR) were both up nearly 6%. Germany’s Deutsche Bank AG (NYSE:DB) rose 5.2%. The gains came as European Commission President Jose Manuel Barroso told the European parliament that the region must strengthen the banks in an urgent manner.
The German private banking association said it opposes Barroso’s demands that banks further increase equity capital. The association believes it would do nothing to solve the current sovereign debt crisis. Several at U.K. banks have said they don’t expect to have to raise any fresh capital even if EU authorities raise minimum ratios.
“There is still huge uncertainty over the euro zone. Some 40% of our exports go to EU countries. This is not just a question of banking–it is an issue concerning all economies, and not just those in Europe,” BBA Chief Executive Angela Knight said,” according to MarketWatch.