Why European Banks Are Sacrificing Growth

Under pressure from regulators to bolster capital, European banks are selling some of their fastest-growing businesses to competitors from outside the region. The sales may leave them better able to withstand financial stress—and less able to boost future profits. Spain’s Banco Santander, which said in October it needs an additional €5.2 billion ($6.9 billion) to meet capital requirements, sold its Colombian unit in December to Chile’s Corpbanca for $1.16 billion. Germany’s Deutsche Bank is weighing options including the sale of most of its asset management unit, while Belgium’s KBC Groep may dispose of businesses in Poland.

Such sales are an unintended consequence of the decision by European regulators to make banks increase capital—a buffer that protects against credit losses—to help them survive the worsening sovereign-debt crisis. The European Banking Authority on Dec. 8 ordered the region’s financial companies to raise €114.7 billion of additional capital by the middle of 2012.