European banks' capital may be hit as bonds fall: JPMorgan says
[ZURICH] European banks holding sovereign debt may see a reduction in their capital ratios from falling bond prices, with lenders in southern Europe among those most affected, according to JPMorgan Chase & Co analysts.
Banca Monte dei Paschi di Siena SpA, CaixaBank SA, Bank of Ireland and UniCredit SpA may be hit hardest, the analysts, led by London-based Kian Abouhossein, wrote in a note Thursday. The analysis excludes any mitigating effect from possible hedges because these aren't disclosed, the note said.
European five-year sovereign bond yields have increased by 38 basis points on average in the second quarter, led by Portuguese, Italian and Spanish debt, the analysts said. Most European banks would have to adjust bond prices in their books to market levels, taking unrealized gains and losses to their Basel III common equity ratios.
The analysts said capital ratios would decline almost a quarter of a percentage point on average. The impact would be three times that much for Italian banks and almost a third of a percentage point for Spain's CaixaBank and the Bank of Ireland.
If Greece exits the euro area, this would probably lead to a further increase in bond yields for the peripheral countries, increasing the potential impact on bank capital, the analysts said.
Greek voters are almost evenly split heading into a referendum in three days over whether the country would endorse austerity and the international bailout.
BLOOMBERG
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
International
China’s April car sales swing to contraction despite NEV milestone
UK exits recession with fastest growth in nearly three years
Europe’s rush for rate cuts shifts global market power away from US
China’s push for greener aluminium hit by erratic rains, power cuts
Saudi crown prince to visit Japan
JPMorgan says India index inclusion on track, clients ready