European Banks Picking Up New Capital
January 25, 2012 by UPI - United Press International, Inc.
FRANKFURT, Germany, Jan. 25 (UPI) — Banks in Europe are well on their way toward satisfying new capital requirements set by regulators, data shows.
Banks have been ordered to raise an additional $150 billion by summer to meet requirements meant to ensure they have enough capital on hand to weather a financial downturn, The New York Times reported Wednesday.
European banks, however, have already raised $52.8 billion, a report compiled by Citigroup says.
Citigroup also said the banks were poised to raise an additional $32.2 billion through June 2012 by reducing bonuses and lending.
Accountants call the strategy retained earnings. In this manner, Deutsche Bank in Germany could add $4.7 billion in new capital by June. That is $600 million more than the European Banking Authority has asked Deutsche Bank to raise.
BNP Paribas in France can use the same method to raise $5.3 billion, far more than authorities have mandated.
“BNP has huge capital needs, but can make the target in one swoop by retaining its shareholder dividend,” said an investment banker in Europe who requested anonymity.
Other banks can retain shareholder dividends to make up the needed capital. Or they can buy back some dividend-paying securities, which can be converted to equity.
Citigroup estimated banks in Europe had already raised $20.9 billion through this method, which is known as liability management exercises.