Europe banks face capital hike watchdog deadline

LONDON Fri Jan 20, 2012 12:11am GMT

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LONDON (Reuters) - Thirty-one European banks must tell their national regulators by Friday how they plan to fill a gaping capital hole, part of the continent's efforts to deal with its debt crisis once and for all.

Collectively, the banks need to fill a 115 billion euros (95 billion pounds) gap, and while a few are still attempting to raise the money privately, most have said they have already found other ways to boost their capital buffers.

Europe has told the lenders they must hold core capital of at least 9 percent of risk-weighted assets, and fill any shortfall by the end of June, to avoid a repeat of the 2008 crisis that led to massive injections of public money.

The threats of lower profits due to a worsening euro zone economy, bigger losses on Greek government bonds and lack of investor appetite to buy bank equity means the need for state aid cannot be ruled out, notably for Commerzbank and Italy's Banca Monte dei Paschi di Siena (MPS) (BMPS.MI).

Still, Germany's Commerzbank (CBKG.DE) said on Thursday it can avoid another state bailout. It needs to find 5.3 billion euros, and said it had already set aside 3 billion euros and would reduce the need for a further 3.3 billion euros.

That sent its shares surging 14 percent, as analysts had feared it would have to resort to state support.

Venerable MPS, the world's oldest lender, needs 3.3 billion euros and may need to ask shareholders or the government for at least half of that, analysts have estimated.

The bank plans to sell real estate and joint ventures, reduce assets and use convertible notes to bolster capital.

Portugal's Millennium bcp (BCP.LS), Spain's Bankia (BKIA.MC) and Popular (POP.MC) also need more capital.

Banks have several options to find the capital required. They can retain earnings, shrink loans to customers, convert hybrid debt into equity, buy back their own bonds, sell assets, and cut dividends or staff pay.

They have to tell their regulators about their plans, which need to be approved before they are passed on to the European Banking Authority (EBA), which will review the plans on Feb 8/9. They are not however, required to publish their plans.

The plans to raise capital are part of a three-pronged plan crafted in October to deal with the euro zone's debt crisis once and for all that also dealt with a second Greek bail-out and the ramping up of Europe's EFSF bail-out fund.

(Writing by Douwe Miedema; Editing by Elaine Hardcastle)

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