European banks seeking to recapitalize and meet new goals set for them by regulators are seeking to do so largely through internal actions than by raising outside funding from investors, and analysts are not impressed by the method.
Indeed, the European Banking Authority reduced the amount originally estimated necessary, and banks already seeking to avoid hitting investors or taking government funds with strings attached are trying to use other measures to reach the target of 9% of core capital reserves.
Bloomberg reported that some of the strategies in play by banks are adjustments in risk weightings, limitation of dividends, retention of earnings, reductions in loans and sales of assets. Banks had even threatened to drop lending and risk bringing on a recession rather than resort to government funds that would require them to meet limits on dividends and bonuses. European Union policymakers are already pushing for such limits.
The Banking Authority has also played its part; the authority, which oversees the banking regulators of the region, has reduced the amount of core capital required via changes in its calculations to offset peripheral national debt writedowns with gains on U.K. and German bond holdings by banks; those bonds are currently trading for more than face value.
Such moves have not wowed analysts. Philippe Bodereau, head of credit research at Pacific Investment Management Co. in London, was quoted saying, "The issue is how much fresh capital will be brought in. It would be positive if we saw banks launching rights issues, but they won't. This is hardly shock and awe."
