European banks quadruple equity raising
European banks have more than quadrupled their equity raising as they seek to fortify their balance sheets with extra capital ahead of crucial stress tests by European regulators later this year.
The continent’s banks have raised €6.5bn in equity for the year to date compared with €1.6bn over the same period in 2013, according to Dealogic, the data provider.
However, Morgan Stanley estimates the true amount of capital raised – including proceeds from initial public offerings and divestments – to be €35bn since last July when banks began to factor in the European Central Bank’s looming assessment of balance sheets.
“The costs for raising capital have come down – so banks are taking it on the chin,” said Huw van Steenis, banking analyst at Morgan Stanley. “The ECB’s asset quality review is proving more cathartic than the market feared, prompting banks to raise capital, take more provisions and help restore confidence.”
Last week, it was revealed that Deutsche Bank is facing pressure from investors to raise more capital amid fears that the bank is not sufficiently robust to cope with a tougher regulatory environment and a slump in global debt markets.
Officials including Mario Draghi, the ECB president, and Danièle Nouy, the euro area’s chief banking regulator, have warned that some banks may have to fail the health checks.
As such banks have been scrambling to pre-empt the ECB’s AQR and stress tests by strengthening their finances now, rather than risk being ordered to do so once the regulatory health check is over.
“Banks will try to get ahead of the AQR/stress tests and take clean-up charges now,” said Mr van Steenis. “No one wants to be caught out later.”
The most vigorous raisers have been concentrated in the eurozone. Italian banks have been the most prolific capital raisers accounting for €10.2bn, or a third, of total capital raised by eurozone banks, according to the Morgan Stanley figures.
Meanwhile, Greek banks have raised €8.8bn, Spanish banks €6.1bn and Austrian banks €3.4bn since last July.
European banks will be required to hold at least 8 per cent of regulatory capital in the stress tests – mostly consisting of shares and retained earnings – to their risk-weighted assets under transitional Basel III rules.
Banks are awaiting publication of the parameters of stress tests that will be imposed on banks across Europe.
The announcement by regulators, including the European Banking Authority, will help investors judge which banks may have black holes in their balance sheets.