EU bank capital hole deepens to 115 billion euros

Thu Dec 8, 2011 3:07pm EST
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By Philipp Halstrick and Edward Taylor

FRANKFURT (Reuters) - Europe's banks must find 114.7 billion euros of extra capital, more than predicted two months ago, to make them strong enough to withstand the euro zone debt crisis and restore investor confidence.

Europe's banking watchdog, confirming a Reuters exclusive earlier on Thursday, said the capital shortfall across 71 banks was almost 8 percent higher than the 106.4 billion euros ($142 billion) estimated in October, telling banks in Germany, Italy, Austria and Belgium to find more cash.

Banks will look to fill any shortfall through rights issues, shrinking loans to customers, selling assets or cutting dividends or pay for staff. National governments may have to bail out any lender unable to find the cash.

German banks need to find 13.1 billion euros, more than double the 5.2 billion estimated in October, the European Banking Authority (EBA) said. Commerzbank needs 5.3 billion euros and Deutsche Bank needs 3.2 billion.

Spanish banks need to find an unchanged 26.2 billion euros, including 15.3 billion at Santander and 6.3 billion at BBVA.

The average core capital of EU banks, excluding those in Greece, was just over 9 percent at the end of September, not far from the average for their top U.S. peers.

But Europe has been criticized for less effectively stress testing its banks than the United States did in 2009.

That is mainly because European governments have not forced weaker banks to capitalize, lacking the power of the Federal Reserve, which immediately provided the funds to shore up U.S. lenders to revive investor confidence.   Continued...