Tuesday, May 25, 2010

Banks Need To Raise Another $1.5T

Rumours are circulating that Tim Geithner wants European bank stress tests. We know how ridiculous those were in the US... Anyway, Independent Credit View, a Swiss rating company, says that banks may have a capital deficit of more than $1.5T by the end of next year, with some of them requiring state support.

The worst offenders are AIB, Commerzbank AG, Bank of Ireland Plc, and RBS.

“Without state aid or debt restructuring these banks will hardly be able to raise capital,”, says the report. They also forecast “massive dilution for existing shareholders.”

According to Bloomberg, the report compared estimated capital needs for the end of 2011 with capital ratios reported at the end of 2009, taking into account the banks’ earnings estimates for 2010 and 2011, forecasts for loan and provisions growth as well as an increase in the tangible common equity ratio to 10%.

AIB may need to raise capital equal to 681% percent of their current market value. Bank of Ireland fares better, may need to raise capital equal to 536% of their current market values!

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