Tags: German | Banks | Capital | Requirements

German Banks Said to Face Higher Capital Requirements From EBA

Tuesday, 22 Nov 2011 10:40 AM

German banks including Commerzbank AG may face higher capital requirements than those announced last month as Europe’s banking regulator considers revising its criteria, people briefed on the matter said.

The European Banking Authority may release details of the capital needs and underlying conditions as soon as next week, said the people, who declined to be identified because the discussions are private. Some aspects of the evaluation are yet to be decided and the EBA will hold meetings of supervisors to discuss them, a European Union official said.

European leaders are demanding banks raise capital after they agreed to accept a 50 percent writedown on Greek sovereign debt. The EBA said Oct. 26 that German banks need to raise 5.18 billion euros ($7 billion) to reach a 9 percent core Tier 1 capital ratio by mid-2012, after marking their sovereign-debt holdings to market.

The total may rise if the EBA applies Basel regulations more stringently and limits the positive effect of debt such as German bunds, one person said. The regulator will also be looking at banks’ sovereign holdings as of Sept. 30, rather than the June figures used for the preliminary estimates.

Commerzbank, which said last month it doesn’t plan to seek state aid, may need 2.94 billion euros in fresh capital, according to an EBA estimate announced on Oct. 27. The lender may have to tap Germany’s Soffin bank rescue fund if the EBA significantly raises its requirements, said one of the people.

The Frankfurt-based bank’s shares tumbled as much as 12 percent, and were down 15.5 cents, or 11 percent, at 1.20 euros by 4:08 p.m. local time. Deutsche Bank AG, Germany’s largest lender, slid 3.7 percent to 24.70 euros.

Loss After Writedown

Commerzbank may need about 5 billion euros in additional capital if the EBA toughens its requirements, Reuters reported today, citing unidentified people familiar with the bank’s internal estimates.

Simone Fuchs, a spokeswoman for Frankfurt-based Commerzbank, declined to comment on whether the bank will face higher capital requirements than announced or tap the Soffin rescue fund. She spoke by phone today.

Commerzbank swung to a third-quarter loss of 687 million euros after writing down the value of its Greek government debt holdings and said it won’t reach a goal for operating profit of more than 4 billion euros in 2012, a target set in 2009 that was subject to “stable market conditions.”

The lender completed a 5.3 billion-euro share sale in June in addition to raising 5.7 billion euros from selling conditional mandatory exchangeable notes to help repay government aid. Commerzbank got more than 18 billion euros from the state after agreeing to buy rival Dresdner Bank two weeks before the collapse of Lehman Brothers Holdings Inc. in September 2008. Germany has maintained its stake of 25 percent plus one share in the lender.

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