Dec. 8 (Bloomberg) -- German banks, including Deutsche Bank AG and Commerzbank AG, were told by the European Banking Authority to raise more capital than previously estimated after some sovereign bonds tumbled.
Germany’s banks must raise 13.1 billion euros ($17.4 billion) to reach a core Tier 1 capital ratio of 9 percent or more based on data from the end of September, financial market regulator BaFin and the Bundesbank said today. That’s more than the 5.2 billion-euro estimate the EBA published in October, which was based on June 30 data. Six of 13 banks tested must raise capital.
European leaders are demanding banks increase reserves to bolster confidence in the industry after financial firms agreed to accept losses on Greek government bonds. The total more than doubled because of the change in the date the information was collected, a “more precise” examination of trading book risks, limitations on market value gains and losses for the debt of euro-area countries, the regulators said.
“These results have to be seen in the context of the current sovereign-bond market upheaval and the simultaneous increase in capital demands,” Raimund Roeseler, head of banking supervision at BaFin, said in the statement.
National regulators debated with the EBA over how much the value of benchmark debt such as German bunds could be used to compensate for writedowns on bonds from Southern European countries such as Greece and Italy, people with knowledge of the matter said last month.
Deutsche Bank, Commerzbank
Deutsche Bank, Germany’s largest lender, must raise 3.2 billion euros while Commerzbank has to boost capital by 5.3 billion euros, according to the statement. Deutsche Bank was previously told by the regulator that it needed about 1.2 billion euros, two people briefed on the matter said in October. Commerzbank had said it needed 2.94 billion euros.
Deutsche Bank Chief Financial Officer Stefan Krause said in a third-quarter earnings presentation on Oct. 25 that the lender needs to fill an estimated capital gap of 2.8 billion euros with earnings to reach a 9.1 percent core tier 1 level by mid-2012. The lender, which did not explicitly disclose an amount for capital needs in October, has said it doesn’t need to sell shares or take state aid and can cut risk-weighted assets and retain earnings.
Deutsche Bank said it can reach the EBA benchmark by the end of the year and strengthen its capital further in 2012 after making “significant progress” in the fourth quarter, which will allow the company to maintain its “core” lending. The bank’s capital requirement includes a 388 million-euro shortfall related to sovereign risks in the European economic area, the lender said in a statement on its website today.
Commerzbank reiterated that it doesn’t plan to seek state aid and that measures announced in October to reduce as much as 30 billion euros of risk-weighted assets are “progressing well.” The bank added that “the issue of equity capital instruments is also an option.”
Europe’s banks will need to increase capital by 114.7 billion euros as part of measures introduced in response to the euro area’s debt crisis, the EBA said today. The regulator estimated in October that the region’s financial institutions would need 106 billion euros.
Italian sovereign bonds handed investors a loss of 4.2 percent in the three months through September, while Portuguese notes fell 1.1 percent and German bunds jumped 7.9 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
German lenders have said the EBA’s test methods and timing risk worsening Europe’s sovereign-debt crisis by sapping investor confidence.
Norddeutsche Landesbank Girozentrale, which saw its capital requirement jump to 2.49 billion euros from an estimate of 660 million euros in October, said the EBA’s changes in its calculations led to “highly contradictory figures” for the bank.
Landesbank Hessen-Thueringen said yesterday that it had a gap of 1.5 billion euros because the EBA didn’t recognize a plan to convert a form of capital by the end of the year.
DZ Bank AG needs to raise 353 million euros, Germany’s largest cooperative lender said in a statement today. WestLB AG, a state-owned bank, said that while it was deemed to need 224 million euros, no plans are necessary “in consideration of the ongoing restructuring process” of the company.
“The stress test hasn’t contributed to market stabilization,” Michael Kemmer, general manager of the BdB Association of German banks, said today in an e-mailed statement. “The lengthy and seemingly chaotic process has also strengthened the impression that every result is possible.”
Banks are trying to hit the 9 percent measure of financial strength by adjusting risk weightings, limiting dividends, retaining earnings, reducing loans and selling assets.
--Editors: Frank Connelly, Steve Bailey
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