EU banks raise EUR 200 bn capital buffer

(LONDON) - Major European banks raised more than 200 billion euros ($258 billion) of fresh capital between December and June to cushion against future financial crises, the EU's banking regulator said Wednesday.

The European Banking Authority said that of the total, 27 banks deemed by the EBA to have had a shortfall raised 116 billion euros to meet the regulator's requirement that each lender's top quality capital ratio amount to at least 9.0 percent.

"The European Banking Authority discloses today the final report on its EU-wide recapitalisation exercise and the data" on 71 banks, including bailed-out banks across highly-indebted eurozone nations Greece, Ireland and Spain.

"Overall, the exercise led to an increase of banks' capital positions of more than 200 billion euros," the London-based EBA said in a statement.

"In line with the recommendation, capital strengthening has not led directly to a significant reduction in lending into the real economy," it added.

The EBA had reported in December 2011 at a particularly critical point in the eurozone crisis, that 27 banks had a total shortfall of 76 billion euros.

These banks had to meet the new target by the end of June.

"European banks have made significant progress in boosting their capital positions and in strengthening the overall resilience of the European banking system," EBA head Andrea Enria said in a statement on Wednesday.

"Banks are now in a better shape to finance the real economy but must continue on the path designed by the new regulatory environment," he added.

Separately, EU financial services commissioner Michel Barnier said that "real progress" had been made.

Alistair Cotton, senior analyst at trading firm Currencies Direct, said the EBA was "trying to put a positive spin on the capital raising results" to help raise market sentiment.

"The reality is there's still a long way to go for many European banks to fully repair their balance sheets," he told AFP.

Even though Spanish banks had reached the required capital level, Cotton said that Madrid would remain under pressure to formally accept a full sovereign financial bailout.

A European Union Summit last year agreed that a package of measures including capital increases was needed to reassure investors about the ability of banks to withstand any further shocks.

"Banks' capital strengthening has been achieved mainly via new capital measures such as retained earnings, new equity and liability management," the EBA said.

Its rule required so-called core capital to amount to 9.0 percent of the risks being carried by each bank, subject to a weighting of each category of risk.

This is higher than new international rules drawn up in response to the 2007-2009 global financial crisis, known as Basel Three, which require 7.0 percent.

Previously, on a different basis, banks had to have a capital ratio of about 5.0 percent.

"Improved capital buffers are a step in the right direction," said Michael Symonds, credit analyst at Daiwa Capital Markets Europe.

"But the (EBA) process had notable limitations, including the lack of any macroeconomic stress test."

The EBA reached its initial assessment of the strength of bank capital after two rounds of stress tests, but these have been discredited in some circles, and by German Chancellor Angela Merkel, because they excluded risks posed by government debt held by banks.

Since then, Spanish banks have been shown to be in a far worse state than was thought and banks have written off huge amounts owed to them by Greece. Cyprus says that this so weakened its banks that it now needs financial help.

"It is rather astonishing how easily some of the banks managed to get hold of the much needed capital," said ETX Capital analyst Markus Huber.

"At the beginning of this year many were very much worried that many banks wouldn't manage, or only at a very high cost, to raise the funds needed in order to fulfill demands by the EBA."

Government bonds in a number of weak eurozone countries have fallen in value, causing further strains for some banks despite especially easy funding conditions from the European Central Bank, on which some lenders have become critically reliant.