Bank capital: Worries mount for investors
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Bank capital: Worries mount for investors

Regulators have sparked a new dash to raise capital; The outlook for earnings and returns is unclear

In the 10 weeks between the announcement in September of the Basle Committee on Banking Supervision’s new requirements for substantially increased minimum capital standards and Ireland’s request for a bailout in November, eight banks listed in Europe – Deutsche Bank, Standard Chartered, BBVA, Banco Popolare, Piraeus Bank, NBG, Bank of Cyprus and Marfin Bank – announced issues to raise about €24 billion of new equity.

Although these have largely been well taken up by investors, "deals are going to get a lot tighter from here", says one head of ECM. Banks’ stock prices have underperformed the European indices, partly because of concerns about new supply, but also worries about the capacity of banks to earn a decent return on higher equity now required by regulators as well as continuing fears about contagion from the unfolding problems in European sovereign debt. Analysts at Credit Suisse calculate that banks from the core of Europe – Germany, France, Belgium and the Netherlands – together hold $900 billion of exposures to peripheral European countries: Portugal, Ireland, Greece and Spain. Ireland’s bailout has not calmed market fears.

Where does this leave Europe’s banks? "Scrabbling around in the rubble," according to a senior financial institutions group investment banker.

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