EU Banks Raised $116 Billion in Capital, EBA Says

EBA Chairman Andrea Enria
Andrea Enria, chairman of the European Banking Authority. Photographer: Joshua Roberts/Bloomberg

European banks increased their capital reserves by 94.4 billion euros ($116 billion) by a June deadline, the European Banking Authority said, as it seeks to boost confidence in the region’s financial system.

Banks raised about 72 billion euros by selling shares, holding on to profits and converting lower-quality capital to common equity, the EBA said in a statement. The rest came from adjusting models lenders use to measure the risk of liabilities.

“This is not the silver bullet, the situation is still fragile,” Andrea Enria, chairman of the EBA, said in an interview in London today. “But banks needed more capital and we gave quite a boost with this exercise.”

The EBA told European banks in December to raise 114.7 billion euros in fresh capital. The agency required banks to keep a core Tier-1 capital ratio of 9 percent and hold additional reserves, called a sovereign buffer, to protect against falling bond prices among euro-area nations.

Four banks, including Dexia SA, Bankia SA and WestLB AG, have since been involved in “such deep restructuring” that they were no longer considered part of the program, bringing the final capital shortfall to 76 billion euros, the EBA said. The agency didn’t give figures for individual lenders.

The December figure also included six Greek banks, which had a shortfall of 30 billion euros. The Greek lenders’ capital needs will be addressed through the International Monetary Fund bailout, the EBA said.

Bank Recapitalization

The figures show that bank recapitalization is “progressing well,” Michel Barnier, the European Union’s financial services chief, said in an e-mailed statement. The exercise will boost the ability of lenders to finance the real economy, he said.

While banks shrank their assets by about 22.6 billion euros, the exercise didn’t affect commercial and consumer lending, according to the EBA, which previously stated it wouldn’t allow banks to meet their targets by cutting loans.

“If we hadn’t done this then banks would’ve tried to beef up their capital by reducing assets more,” Enria said.

Lenders tapped public funds where private measures weren’t enough, the EBA said. Three Portuguese banks took around 6 billion euros in capital from the state, while Italy’s Banca Monte dei Paschi di Siena SpA was stabilized with 2 billion euros from the government to meet the EBA’s target, the regulator said.

Bankia requested aid of 23.5 billion euros in May, three months after the lender reported a profit of 309 million euros for 2011. Spain’s ruling People’s Party yesterday called former Chairman Rodrigo Rato to testify before parliament, abandoning its attempts to shut down an inquiry into the blackhole in the bank’s balance sheet.

“Bank funding is still very difficult” in the European Union, Enria said.

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