Bloomberg News

Schaeuble Said to See June Deadline for Bank Capital

October 19, 2011

(Updates with JPMorgan comments in fifth paragraph. See EXT4 for more on the euro-area financial crisis.)

Oct. 19 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble told a closed parliamentary committee that he expects a deadline of June 30, 2012, for European banks to meet increased capital levels, said two lawmakers who attended the meeting.

The lenders will need to hold minimum core tier 1 capital, a measure of financial strength, of 9 percent by that deadline, the lawmakers said, speaking on condition of anonymity because it was a non-public session in Berlin today.

Boosting banks’ resilience would be part of a wider plan scheduled to be announced on Oct. 23 to stamp out the sovereign debt crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency.

A mid-2012 deadline would give banks more time to boost their capital. A European Union official, who spoke on condition of anonymity, said on Oct. 13 that a possible timetable for any recapitalization is three months to six months.

Still, a six to nine month timeframe for banks to raise capital and reduce risk-weighted assets is “unrealistic,” JPMorgan Chase & Co. analysts led by Kian Abouhossein wrote in a note to clients today. European banks may need a total of 230 billion euros to recapitalize in 2012, they said.

Immediate Injections

“Bank equity investors need immediate capital injections through mandatory convertibles by governments -- not a six to nine month time vacuum,” the JPMorgan analyst wrote. Such a move “automatically improves capital ratios of the banks, hence it should have a positive impact on market sentiment by reducing uncertainty related to the stability of the banking sector.”

This would also give banks the opportunity to wait to sell new shares once the environment improves, reducing the dilution of existing shareholders that would happen when selling shares at the current low valuations, JPMorgan said.

A core tier 1 capital level of 9 percent would lead to a 220 billion-euro ($304 billion) capital shortfall at 66 of Europe’s largest banks, with the biggest gaps at Edinburgh-based Royal Bank of Scotland Group Plc, Deutsche Bank AG and Paris-based BNP Paribas SA, according to a note published by Credit Suisse Group AG analysts on Oct. 13.

The European Banking Authority is assessing whether banks could withstand sovereign debt writedowns, a person familiar with the talks said on Oct. 12.

“A number of scenarios and formula are currently discussed and considered by European regulators, with new targets to be met by June 2012,” Bank of France Governor Christian Noyer said Oct. 17. “I expect French banks to be able to fully cover any additional capital needs by their own means,” Noyer said.

--Editors: James Hertling, Frank Connelly

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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