By Sarah Gordon, Companies editor
This week Europe?s banks had to tell their regulator, the European Banking Authority, how they plan to raise money to fill the holes on their balance sheets it identified last year.
The numbers are huge. Greece?s banks have to find 30bn euros by June, Spain?s 26bn euros and Italy?s 15bn euros. In total, the region?s banks have a shortfall of 115bn euros.
Banks have been scrambling to meet these targets. Raising money in the markets looks a challenge. Italy?s UniCredit, with 8bn euros to find, announced in early January that it would try to raise most of this through a rights issue – triggering a near halving in its share price. Other banks have taken a different route. Spain?s Santander, Europe?s biggest bank by market value, has sold off its Brazilian business and converted debt into equity to try to meet its 15bn euros target, the largest of all the banks. Germany?s Commerzbank says it will pay staff bonuses in shares, saving 250m euros of capital.
Forcing banks to build up their capital buffers is obviously the responsible thing to do and would not have happened without regulators? urging. The new requirements mean that banks have to offset their lending and other activities by putting more money aside – and the riskier the activity, the more capital must be squirrelled away.
However, while the logic of saving money for a rainy day may be unimpeachable, unfortunately it is having unintended consequences. Rather than raising capital, banks are threatening to shrink their lending instead – hardly what regulators, let alone Europe?s companies, want.
And there are other reasons to feel uneasy. Would Northern Rock, or Lehman Brothers have survived if they had had more capital? Sadly not. For the reality is that it is not the amount of capital a bank holds that protects it in a crisis, but its ability to access ready cash for its immediate needs.
And there are plenty of signs that banks – the weaker ones at least – are still finding it hard to get hold of the money they need to keep going.
Since 2008 the European Central Bank has been prepared to lend to the region?s banks when the market – mainly in the form of other banks – has been unwilling to. And this week brought evidence of banks? increasing dependence on the ECB. Research by Morgan Stanley shows that, of the nearly 500bn euros the ECB provided to the European banking sector in December in the form of a generous three-year lending facility, the biggest users were Italy?s banks, with UniCredit, Intesa Sanpaolo and Monte dei Paschi di Siena borrowing a stonking 35bn euros. The UK?s Royal Bank of Scotland, via its Dutch subsidiary, snapped up 5bn euros.
How long the ECB can continue to provide a lifeline for Europe?s banks is debatable. But the numbers suggest that, in terms of shoring up the banking sector, all the capital-raising in the world may be in vain.
? The Financial Times Limited 2012