The EBA (European Banking Authority) have issued a statement/edict suggesting that banks within the European Union must raise circa 114.7 billion euros in fresh capital in order to comply with measures introduced to respond to the euro area’s sovereign-debt crisis.
Specifically German banks will need to raise an additional 13.1 billion euros, Italian banks 15.4 billion euros, and Spanish banks 26.2 billion euros in order to comply with revised core tier 1 capital demands the European Banking Authority stated in a conference in London on Thursday. The capital shortfalls include 15.3 billion euros for Spain’s Banco Santander SA and 7.97 billion euros for Italy’s UniCredit SpA.
Other prominent lenders who have significant holes in their finances that they’ll have to bolster include Deutsche Bank AG, whose shortfall is 3.2 billion euros, Banco Bilbao Vizcaya Argentaria SA, shortfall of 6.33 billion euros, BNP Paribas SA, shortfall of 1.5 billion euros, Societe Generale SA, shortfall of 2.1 billion euros. Commerzbank AG needs 5.3 billion euros according to the German regulator Bafin. France’s Groupe BPCE has a 3.7 billion euro shortfall, Italy’s Banca Monte dei Paschi di Siena SpA has a 3.27 billion euros shortfall.
Dexia SA, the French-Belgian lender that’s currently in the process of being broken up, insists they have no reasons to comply with the revised capital rules set by the European Banking Authority as it’s radically shrinking in size.
However, The EBA state that Dexia requires 6.31 billion euros to reach the revised capital target, Dexia believe that figure shrank to 4.2 billion euros after the Belgian government’s takeover of Dexia Bank Belgium SA on Oct. 20.
Market Overview
Equities fell sharply in the afternoon session on Thursday as optimism, with regards to an overall solution to the Eurozone debt crisis being found, began to evaporate. The usual harsh realities have begun to emerge, despite the air of convenient agreement carefully choreographed for the assembled media Merkel and Sarkozy are without a doubt still not on the same page. The news that the EBA have demanded so many leading banks require extra tier 1 capital by 2012 will not have helped the mood. Added to the threat by S&P of a downgrade the storm clouds are once again gathering with intensity. As to where the banks get the required capital is a problem, presumably a repatriation by shareholders in the form of a rights issue is one solution.
The euro weakened in the afternoon session, Spanish and Italian bonds fell due to the European Central Bank pouring cold water on speculation that it might boost sovereign-debt purchases. Despite the slightly better than predicted job loss print U.S. equities specifically extended losses amid reports Germany has categorically rejected certain Sarkozy inspired proposals to fight the debt crisis at the Marseilles summit of leaders that’s due to finish on Friday evening.
The SPX, the Standard & Poor’s 500 Index, lost 2.1 percent to eventually close at 1,234.35 at 4 p.m. New York time, this represented the worst drop in two weeks. The index had experienced a circa 10% rise over a similar period based on very little other than sentiment, trust and ultimate confidence that the E.U. leaders will eventually find a solution. One extremely harsh reality that is finally beginning to bite is time; the Eurozone nation took circa eight years to agree, ratify and make law a treaty on governance, to expect that same union to dramatically alter that treaty inside days in respect of the current situation is fantasy.
The Stoxx Europe 600 Index finally closed the afternoon trading session down 1.5 percent, reversing the earlier 1 percent advance earlier in the day. The euro rose slightly after the ECB lowered interest rates by 0.25% sliding 0.5 percent to reach $1.3349. Yields on both 10-year Italian and Spanish bonds rose by at least 38 points. The S&P GSCI Index of main commodities lost 1.2 percent, wiping out the earlier gain of 0.9 percent. Ten-year Treasury yields fell six basis points to 1.97 percent.
We’ll leave the final word to Sebastian Mallaby, who is a director of geoeconomic studies at the peculiar but incredibly influential NGO American institute The Council on Foreign Relations, he told Bloomberg Television on Thursday that Germany is:
[quote]Still driving the bus and they are driving it off a cliff. It’s almost as though if they had a plan, a secret, devious plan to blow up Europe, this is sort of what they would be doing.[/quote]
Economic calendar data releases that may affect the sentiment of the morning European session:
Friday 9 December
09:30 UK – PPI Input November
09:30 UK – PPI Output November
09:30 UK – Trade Balance October
The main economic calendar releases feature the UK tomorrow. PPI input a Bloomberg survey of analysts yielded a median estimate of a month on month increase of -0.1%, as compared with the last figure of -0.8%. For output a Bloomberg survey of analysts forecast a month on month figure of 0.0% from 0.0% previously. The year-on-year figure predicted was 5.3%, compared with 5.7% from the previous release. The ‘core’ month on month estimate was 0.0% from -0.1% prior to this and the year-on-year ‘core’ release was expected to be 3.4% from 3.3% previously. For trade balance economists polled in a Bloomberg survey gave a median forecast of -£3450 million, compared with the previous figure of -£3940 million.
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