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European banks may face 26 bln euro capital shortfall on new rules: JPMorgan
[LONDON] European banks are likely to face a capital shortfall of as much as 26 billion euros if regulators succeed in launching uniform capital ratio requirements by the end of 2018, analysts at JPMorgan Cazenove said.
Europe is introducing a globally agreed set of capital rules that incorporate lessons from the financial crisis of 2007-09, when taxpayers had to bail out several lenders.
JPMorgan's analysis showed 13 out of 35 banks may fail to meet minimum capital needs, with regulators' harmonization efforts likely to reduce average common equity tier one ratio for the sector from 14 per cent to 12.1 per cent in 2018.
The capital rules, that are being phased in through to 2019, will end the bulk of the waivers that some national regulators allow, making it harder for investors to compare banks.
The harmonization efforts will likely have a capital equivalent impact of 137 billion euros on European banks, with an estimated shortfall of 26 billion euros of common equity tier 1 capital, JP Morgan said.
The bulk of the shortfall is likely to be faced by Raiffeisen Bank, Credit Agricole SA, UniCredit Spa, Societe Generale, Banco Santander and Natixis, JP Morgan said.
Credit Agricole, SocGen and Santander are most likely to cut dividend to address the capital shortfall, JP Morgan analysts said. Others are likely to reduce risk weighted assets and lower leverage exposure.
Only Raffeisen Bank, with a capital shortfall of one billion euros, would still face the risk of dilution while the rest may be able to bridge the gap, the analysts added.
The brokerage upgraded Commerzbank AG to"overweight" from "neutral", saying the German bank should continue to benefit from the European Central Bank's ongoing Quantitative Easing-led asset revaluation in its non-core assets portfolio.
JP Morgan's top picks portfolio includes UBS AG, Deutsche Bank AG, Commerzbank, Lloyds Banking Group , Danske Bank and Nordea Bank.