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WRAPUP 2-Watchdog leaves EU banks in dark on capital
November 29, 2011 / 1:21 PM / 6 years ago

WRAPUP 2-Watchdog leaves EU banks in dark on capital

* EBA won’t release capital needs Weds, likely next week

* Delay comes as EU finance ministers discuss euro zone plan

* Capital, funding strains build on banks

* Commerzbank may shift property arm to state

* SocGen selling 600 mln eur of property loans

By Huw Jones and Jonathan Gould

LONDON/FRANKFURT, Nov 29 (Reuters) - Europe’s banking watchdog has delayed telling individual lenders how much capital they must raise to safeguard their survival until EU finance ministers can agree on broader plans to shore up confidence in the financial system.

The delay is a blow to banks and investors keen to get to grips with how much cash is needed as the bank sector faces multiple risks that threaten to spill over to the real economy.

The European Banking Authority (EBA) had planned to finalise by Wednesday how much cash banks need to meet a minimum 9 percent core capital -- a preliminary estimate had put it at 106 billion euros ($141.5 billion) for the 70 lenders under scrutiny.

But European Union finance ministers (Ecofin) meeting to discuss the euro zone debt crisis need to help banks as part of a wider plan. If they agree on the bank measures, the EBA is likely to release details next week, a spokeswoman for the EBA said.

The euro zone crisis has shown how closely banks are tied to the health of their country, which continues to hurt Greece’s lenders. Some 13-14 billion euros of deposits left Greek banks in September-October, and the outflows continued in the first 10 days of November, the country’s central bank chief said.

Cyprus’s largest lender, Bank of Cyprus also showed the risk of sovereign troubles spilling over borders, as it slumped to a loss after losing 1 billion euros on its holdings of Greek government bonds.

Banks are under pressure from worries about sovereign health, capital and liquidity, analysts said.

“For the funding markets to reopen, banks need a minimum of 160 billion euros (more capital) in a mild recession and 215 billion in a stress scenario,” said Kian Abouhossein, analyst at JPMorgan.

If the credit market doesn’t reopen, he said banks could face a “systemic problem” as they need to refinance 680 billion euros of debt next year. “We see funding as one of the key challenges in 2012,” he said.

The European bank sector was down 0.1 percent by 1700 GMT, languishing not far from a more than 2-1/2 year low set last week.

BROADER PACKAGE

Banks across Europe are stepping up plans to shrink balance sheets in the face of these difficulties, prompting Portugal’s banking regulator to warn its banks to shrink slowly to limit damage to its fragile economy.

Germany’s Commerzbank may shift bad assets from its loss-making property arm Eurohypo to the German state, sources close to the bank told Reuters.

The move could allow it to avoid a potentially punitive fresh state-aid inquiry by the European Commission. It has been ordered by the Commission to sell Eurohypo by the end of 2014 as a condition for approving state aid in 2008/09.

France’s Societe Generale is selling property loans worth more than 600 million euros ($801 million) as it seeks to slash its exposure to the volatile sector and bolster its balance sheet, a person close to the situation said.

Rivals BNP Paribas and Credit Agricole and banks in Italy, Spain, Germany, Britain and Ireland are also deleveraging aggressively to meet tougher capital rules and ease funding strains.

That could put more pressure on sovereign debt or squeeze lending to the economy, according to a report prepared for the Ecofin meeting.

“There are serious concerns about a possible inappropriate deleveraging by banks when implementing the measures that would prejudice an adequate supply of lending to the real economy or put excessive additional pressure on sovereign debt,” officials wrote in the report seen by Reuters.

Sweden’s central bank told its lenders to adopt tougher global rules on liquidity ahead of the deadline, ratcheting up pressure on the sector just days after introducing tougher capital requirements than European rivals.

The Riksbank said Swedish banks should speed up changes to short-term liquidity and the way they fund themselves in the longer term so that their assets and liabilities match better.

The EBA said it had made progress in finalising its recapitalisation plan, but it was part of a broader package also including improving long-term funding and dealing with losses on Greece’s debt. Funding appears to be the sticking point for policymakers.

A public guarantee scheme was considered to support banks’ access to term funding, but there were objections to a pooled guarantee and now national guarantees are on the cards.

The EBA is also due to publish guidelines for banks that want to issue hybrid debt known as contingent capital to help fill any capital shortfall.

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