AppId is over the quota
AppId is over the quota
By Steve Slater and Sonya Dowsett
LONDON/MADRID | Thu Oct 27, 2011 12:18pm BST
LONDON/MADRID (Reuters) - Europe's banks may need to raise less than 30 billion euros (26 billion pounds) under a plan hammered out in overnight talks to halt a euro zone debt crisis, as dividend and bonus cuts, earnings and IMF aid provide the bulk of a recapitalisation.
Banks have to find 106 billion euros to shore up their capital by the end of June, as one part of a three-pronged plan to restore confidence in the sector and halt a eurozone debt crisis from spreading.
The news sent banks shares soaring over 6 percent.
After tense talks that ran to the early hours of Thursday, private sector investors also agreed to halve the value of their Greek government debt holdings -- taking a collective 103 billion euro 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.
Bank shares jumped on relief that the deadlock had been broken. By 11:20 a.m. the STOXX European bank index was up 6.7 percent at a 10-week high of 146 points.
WHO NEEDS CAPITAL?
Banks in Spain, Italy, France, Portugal, Greece and elsewhere were told they needed to recapitalise to be able to better withstand eurozone sovereign bond losses and an economic downturn.
But the scale of cashcalls needed by banks is expected to be limited, as they take other options to help their capital ratios improve in the next eight months, bankers said.
Of the sum needed, 30 billion euros is already being provided to Greek banks under an aid plan and Portugal's banks, who need 7.8 billion euros, can also tap an aid package.
Belgium's Dexia (DEXI.BR), which needs 4 billion euros, is also being restructured with state help, as is Volksbanken, which accounts for much of Austria's 3 billion euro need.
Spain's Santander (SAN.MC) can meet 8.5 billion euros of its capital need with a convertible bond.
If banks at risk of a capital shortfall cut dividends this year and next it could save about 32 billion euros, analysts at Credit Suisse estimated earlier this week.
Asset sales and debt liability management plans will provide further cash. Some deleveraging -- as long as it is not what the European Banking Authority (EBA) deems "excessive" -- will lift capital ratios further.
That could see banks needing to raise less than 30 billion euros from investors. With European bank shares trading at an average 0.6 times book value, any capital raising would be painfully dilutive for investors.
The amount needed was in line with expectations, though Spanish banks need more than many analysts' forecast, at 26 billion euros.
Santander said its capital shortfall is 15 billion euros, or 6.5 billion with the convertible bond benefit. Peer BBVA (BBVA.MC) needs 7.1 billion euros and Banco Popular (POP.MC) needs 2.4 billion.
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 45 billion euros," 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 take steps to 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 repitalisation plan. The EBA did not break down how much each lender needs, leaving that to the banks and national regulators.
France's BNP Paribas (BNPP.PA) requires 2.1 billion euros, Societe Generale needs 3.3 billion and BPCE, the mutual that owns Natixis (CNAT.PA), is in need of 3.4 billion.
BNP Paribas should be able to meet its needs by retaining earnings, and so could the other French banks, analysts said.
Other major banks expected to need to bolster capital include Italy's UniCredit (CRDI.MI) and Germany's Deutsche Bank (DBKGn.DE), although the latter has said it will be able to meet its shortfall without any state help.
Shares in BNP Paribas, SocGen and Deutsche Bank rallied over 14 percent due to their modest capital needs, while Credit Agricole (CAGR.PA) leapt 21 percent as it did not need funds.
(Additional reporting by Lionel Laurent in Paris; Editing by David Hulmes and David Cowell)
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