Banks poised to raise $50 billion in capital

By Daisy Ku

LONDON (Reuters) - The race is on.

Facing greater scrutiny from regulators and higher losses on loan portfolios as the credit crunch hits the real economy, U.S. and European banks are scrambling to raise over $50 billion to shore up their capital.

Since the start of the financial crisis last summer, some $191 billion of capital has been raised to rebuild the balance sheets of U.S. and European banks, according to UBS research.

While the first round of fund raising had been driven by sovereign wealth funds, a second round, triggered by UBS' (UBSN.VX) $15 billion rights issue on April 1, has mainly been supported by public share sales.

Analysts and bankers are expecting another $50 billion to $80 billion to be raised over the next one to two months following RBS's (RBS.L) 12 billion pound ($23.66 billion) rights issue, as banks improve their capital positions.

It may be better to be safe than sorry.

"I know of several banks who are thinking about doing a rights issue or hybrid convertibles even though they don't absolutely need the money," a London-based equity capital markets banker said.

REGULATORY FOCUS

More cash calls are coming as regulators demand higher core capital ratios.

Regulators and central bankers now are requiring an extra layer of permanent capital as they pump hundreds of billions of dollars into the financial system to restore confidence.

U.S. and UK regulators now prefer a minimum core tier 1 capital ratio of 6 percent, bankers said.

To achieve that, Merrill Lynch analysts estimate Barclays (BARC.L), HBOS HBOS.L and Lloyds TSB (LLOY.L) would need $17 billion, $12 billion and $4 billion, respectively.

The board of HBOS, Britain's largest mortgage lender, is meeting on Monday to discuss a rights issue plan, according to people close to the bank.

"They better raise it now rather than wait. When the credit crisis hits the real economy, their loan books are going to be impaired," said a banker focusing on financial institutions.

The International Monetary Fund, for example, predicts banks will register a $340 billion to $380 billion mark-to-market loss on lending.