Friday, January 20, 2012

The Incredible Shrinking (European Banks) |

European banks prepare to shrink  

Although the headlines are quiet at the moment there is still quite a bit occurring behind the scenes in Europe. Obviously everyone is still waiting for a resolution of the Greek situation and that story is changing by the hour. The latest is that there is some sort of deal, but it won’t be available until noon Friday ( Greek time ) and it is supposed to be tabled at the European summit on Monday. I have no idea if this is the case as it is about the 50th time I have read the same thing so we will all just have to wait and see.

As I have been reporting over the last few weeks there is mounting pressure on the European banks re-capitalise as to meet the requirement of core tier 1 capital ratio of 9 percent over risk weighted assets by June 30, 2012.  This is now coming to a head with banks required to deliver a “credible” plan to European banking authority as to how this is to be achieved by Friday.

Banks have several options to find the capital required. They can retain earnings, shrink their loan book, convert hybrid debt into equity, buy back their own debt, sell assets, cut expenses (including staff salaries ) and/or cut dividend payments to shareholders.


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