European banks’ capital restructuring plans do not look credible

Date: Monday 06 Feb 2012

The European Banking Authority (EBA) called last December on some of the Continent´s leading banks to raise capital by €115bn in order to reach a 9% core tier 1 capital ratio, but the regulator may decide to challenge some of their plans to meet that requirement.

According to a front-page story in today’s print edition of the Financial Times (FT), which cites one person close to the process, “as much as half of the measures outlined in those plans do not look credible”.

This source mentions two contentious tactics: an aggressive risk-weighting of assets and asset sales that are unlikely to attract buyers.

The capital requirement plans are expected to be discussed by the EBA board next week and the regulator plans to monitor asset sales so as to make sure that they are not damaging to the economy.

The FT notes that the EBA could show some flexibility in order to avoid fire sales but “the sales cannot be put off indefinitely”.

As a sector banks are leading the decline in Europe this morning with a drop of 0.89%

JM

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