Bloomberg News

European Banks Will Probably Rely on Government-Backed Debt

January 07, 2009

European banks are likely to rely on government-guaranteed debt for the foreseeable future as funding markets are still “bunged-up,” Keefe, Bruyette & Woods Ltd. wrote in a note to investors.

“Government and central bank action has relieved the market from the crisis peaks in October, but many funding metrics are still at distressed levels,” Keefe, Bruyette analysts including London-based Vasco Moreno said. The analysts maintained their neutral stance on the industry, and on concerns about asset quality deterioration and pressure to recapitalize.

The 69-member Bloomberg Europe Banks and Financial Services Index slumped 65 percent last year as the credit markets froze and governments from Washington to London rushed to shore up banks’ capital and unlock lending.

“We remain concerned about capital and leverage constraints upon banks from governments keen to get credit flowing, and believe we could still see capital raisings, even from previous ‘winners’,” the analysts wrote.

UniCredit SpA (UCG), Italy’s biggest bank, and Banco Bilbao Vizcaya Argentaria SA (BBVA) had their recommendations cut to “outperform” from “market perform,” while Banco Espirito Santo SA (BES) was lowered to “underperform” from “market perform.” BNP Paribas SA (BNP), Banco Popolare SC (BP) and Mediobanca SpA were raised to “outperform” from “market perform.”

Keefe, Bruyette & Woods raised its price estimates for eight banks, while cutting them for 34 lenders. Standard Chartered Plc (STAN) was raised by 32 percent and Anglo Irish Bank Corp. was lowered by 63 percent.

To contact the reporter on this story: Martijn van der Starre in Amsterdam at

To contact the editor responsible for this story: Frank Connelly; Mike Anderson at

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