Here’s What Banks Must Do for Eurozone Restructuring
According to the European Banking Authority, Europe’s banks (NYSE:KBE) need to raise $147 billion (106 billion euros) in new capital under more harsh rules after that came in response to the euro area’s sovereign debt crisis. Spanish banks need 26.2 billion euros and Italian banks need 14.8 billion euros in core tier 1 capital. The deadline is December 25 for lenders to present their plans for coming up with the money.
EBA said in a statement on its website says, “The building of these buffers will allow banks to withstand a range of shocks while still being able to maintain an adequate capital level.” European leaders are meeting to work out an agreement to support the region’s rescue fund, recapitalizing banks and relieving Greece to avoid spreading to Italy and Spain. The meeting also part of an effort to resolve the two-year-old sovereign-debt crisis that has pushed Greece closer to default. U.K. (NYSE:EWU) banks are not going to need to raise extra capital, but German (NYSE:EWG) banks will have to find 5.2 billion euros. Top publicly traded European banks include UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), Royal Bank of Scotland (NYSE:RBS), Lloyd’s (NYSE:LYG), and Credit Suisse (NYSE:CS).
The EBA suggests banks keep bonuses and dividends along with look toward private markets before seeking government funds. The agency says a definition of core tier 1 capital that is “largely the same” as that applied by the EBA in this year’s round of stress tests on European Union banks, will be used to calculate lenders reserves. By the end of June 2012, lenders will have to reach the 9 percent capital threshold. To help meet the 9 percent requirement Spain’s (NYSE:EWP) banks 9 billion euros in bonds that are mandatorily convertible into shares can be used.
The EBA plans have Spanish bonds facing a 3 percent writedown. Greek banks need about 30 billion euros to survive sovereign writedowns. Irish banks would not need to raise extra capital.
“The term funding market is currently closed due to increasing concerns over the sovereign situation and banks may find it difficult to address their funding needs in 2012,” the EBA said adding Banks benefiting from guarantees would have to pay fees.