Monday, September 13, 2010

Lots of New Billions Here and There Needed By Banks: Who Wants to Own Banks That Can't Pay Dividends for 3 Years!

It turned out that DB Deutsche Bank AG needs $12.5B, not 'just' the $11B that was reported last week. Hello dillution.

The reason are "takeovers" and to meet stricter capital rules. Basel III reached a conclusion this weekend, and with it, banks will need to raise more money, a lot more money. Please see our post last Friday as to what this means (it won't be pleasant for the stock markets).

Bloomberg reports: "Regulators looking to rein in the sort of risk-taking that caused the last financial crisis reached a compromise in Switzerland yesterday that more than doubles capital requirements for the world’s banks while giving them as long as eight years to comply.
[Basel] will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends, though not forced to raise cash.
The definitions of what counts as capital and how risk is assessed have also been tightened. Some banks, such as BAC and Citigroup Inc., will be restricted in how much cash they can return to shareholders and pay their employees in years to come. Others, like Deutsche Bank AG, have already announced plans to raise additional capital.

“These are big changes in capital requirements,” said James Wiener, the New York-based head of finance and risk practice at Oliver Wyman, a management-consulting firm. “There’s a long period of adjustment, which takes off some pressure. But still, who wants to own a bank that can’t pay dividends for three years?”

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