News Column

United Kingdom : At least 22 European banks expect to raise capital following the AQR

June 24, 2014

Despite this, European banks are optimistic about their growth and financial performance this year, and are expecting to increase both lending to the real economy and pay to their employees.

Steven Lewis, Lead Global Banking Analyst at EY, says: On the face of it, squaring banks optimism on recovery and growth with their expectations around having to raise further capital is difficult. But if you look more closely at the results, it s clear that there is increasing divergence between the strong and the weak. Stronger banks are expecting their financial performance to improve and to be able to increase lending and pay this year as a result, while the weaker banks are still concerned about capital levels.

We have already seen significant pre-emptive capital raising in the market. With such a high number of banks considering coming to the market for more capital in Q3 and Q4, this looks to have been a wise move.

Thirty percent of Eurozone banks may need more capital Across the Eurozone markets surveyed, on average about 30% of banks cannot rule out further capital raising post-AQR. Across the whole sample of European banks, a significant minority of banks (8%) fully expect to have to raise further capital following the AQR and a further 20% think they might still need to raise capital.

Banks in Germany were most bullish with just 4% expecting to have to raise capital and a further 2% unable to rule it out. Banks in Spain were least confident with 35% expecting to have to raise more capital and 25% unable to rule it out.

The survey was conducted in March 2014 and, by the end of polling (4 April), six Eurozone banks had already executed a capital raising initiative this year. By 4 April 2014, Eurozone banks had raised US$11b compared to US$2b for the same period in 2013. Since then another 10 banks have announced plans to raise capital prior to the completion of the AQR. In total this year, European banks have already raised US$35b of equity, which is 70% more than was raised in the same period in 2013.1

Market divided on loan-loss provisions Thirty percent of banks also expect to have to raise provisions this year. Banks in Spain and Austria are most likely to raise provisions: banks in Spain have lingering concerns about sovereign debt problems and have been required to revalue their real-estate portfolios; banks in Austria are least confident about the economy and are more exposed to Eastern Europe.

However, the improving economic conditions mean that 23% of banks expect to be able to release provisions in the next six months, which is an improvement on H2 2013, when just 14% expected to be able to release provisions.

In part, this market divide can be traced back to local-market concerns about the economy and lingering concerns about sovereign debt, but there is also a clear correlation with pressures put on banks by the AQR.

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Source: TendersInfo (India)

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