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August 15, 2007 - Bloomberg: The reality is an entire market in default.

Global banks may have a capital deficit of more than $1.5 trillion by the end of next year and some may require state support, according to a study by Independent Credit View, a Swiss rating company.

Allied Irish Banks Plc, Commerzbank AG, Bank of Ireland Plc and Royal Bank of Scotland Group Plc may have the biggest capital deficits by the end of 2011 among the 58 banks examined in the study, Christian Fischer, a partner and banking analyst at Independent Credit View, told journalists in Zurich today.

“Without state aid or debt restructuring these banks will hardly be able to raise capital,” Fischer said, forecasting “massive dilution for existing shareholders.”

The study compared estimated capital needs for the end of 2011 with capital ratios reported at the end of last year. The analysts took into account the banks’ earnings estimates for this year and next, forecasts for loan and provisions growth as well as an increase in the tangible common equity ratio to 10 percent from the average of 9 percent at the end of December.

Dublin-based Allied Irish and Bank of Ireland may need to raise capital equal to 681 percent and 536 percent of their current market values, respectively, Fischer said. The two Irish banks also got the lowest credit ratings in the study from Independent Credit View, of BB- and B+, respectively.

“We do have a substantial amount of capital that our financial regulator here in Ireland has requested us to raise,” Alan Kelly, a spokesman for Allied Irish, said by phone. “A substantial portion of that, that yet can’t be determined because we’re only in process, will be raised through the disposal of assets.”

Capital Raisings

Ireland’s financial regulator, Matthew Elderfield, who took over in January, has told Allied Irish and Bank of Ireland to raise about 10 billion euros ($12.2 billion) by the end of the year to meet new capital requirements and create a buffer against losses as loans turn bad.

“The financial regulator has determined how much capital Bank of Ireland needs and we’re currently in the process of finalizing the raising of an amount in excess of that,” spokeswoman Anne Mathews said by phone. “The findings in this report are clearly out of date.”

Bank of Ireland is selling new shares as part of a plan to raise 2.9 billion euros, while Allied Irish has said it will sell stakes in banks in Poland and the U.S. as it tries to raise about 7.4 billion euros.

Independent Credit View’s study doesn’t take into account the bank’s transfer of loans to the National Asset Management Agency, Bank of Ireland said.

Commerzbank, RBS

Commerzbank of Frankfurt may see a capital deficit equal to 611 percent of its market value, while for Edinburgh-based RBS that ratio may be 359 percent, according to the study. Commerzbank is also among the banks that may have the biggest potential for rating downgrades, along with Barclays Plc, Banco Santander SA and Italian lenders, Fischer said.

Spokespeople for RBS and London-based Barclays declined to comment. Commerzbank declined to comment.

A spokesman for Madrid-based Santander, who asked not to be identified in line with company policy, said the study’s conclusion about potential rating downgrades is “mistaken.” Santander is “one of the best capitalized banks in the world with a very low risk profile and that has continued to generate profit and pay dividends through the financial crisis,” he said.

Zurich-based Independent Credit View was formed in 2003. In an August 2007 study, the company warned about higher risks on the balance sheets of German Landesbanks, U.K., Icelandic and Spanish lenders than perceived by other rating companies at the time, Fischer said.

Bloomberg, 25 May 2010


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