Surcharge could cost banks €50bn

EUROPE’S BANKS may need to raise more than €50 billion after regulators slapped an extra capital surcharge on big lenders to make them safer and forbid the use of debt as a substitute for capital.

Bank shares hit a low for the year as lenders in France and Germany may be most in need, adding to fears their capital could be strained by losses on holdings of Greek bonds and loans to the troubled euro zone country.

“Capital will become a critical competitive issue. The race to compete for capital has begun,” Deutsche Bank chief executive Josef Ackermann said yesterday.

A capital surcharge of between 1 per cent and 2.5 per cent for the biggest systemically important banks agreed by global regulators at the weekend was in line with or slightly less than expectations.

Dr Ackermann expected Deutsche Bank to be in the top band and that all the banks facing a surcharge would benefit from lower refinancing costs and be preferred by depositors. Analysts argue a surcharge means that governments believe the lenders are too important to fail. But the exclusion of a hybrid form of debt known as contingent capital, which converts to equity in times of stress, to comply with the surcharge is a disappointment to many banks and investors, analysts said. “The buffer should trigger a final wave of rights issues,” Antonio Guglielmi, analyst at Mediobanca said, estimating a €62 billion capital shortfall shared between BNP Paribas, Société Générale, Credit Agricole, Santander, Credit Suisse, Deutsche Bank and UniCredit . – (Reuters)