labels: Goldman Sachs
Goldman Sachs predicts dire future for European banks, predicts need for more capital news
05 July 2008

Resident Wall Street expert Goldman Sachs has just come out with its latest report on European banks, and the news isn't good. Not only has it lowered two-year estimates for 40 odd European financial institutions, it has also sector needs to raise about €60 billion ($94 billion) to €90 billion ($141 billion), or withhold one year of dividends, to reach an aggregate Tier I ratio of 9 per cent - a level achieved by European banks that have recapitalized recently.

European banks have already raised $115 billion from investors to replenish capital after reporting $134 billion in write-downs, Goldman analysts led by Christoffer Malmer said in a note to clients yesterday. (Also see: Goldman Sachs says worst yet to come for banks, but sees turnaround in 2009)

Big banks and finance institutions around the world have suffered losses and write-downs stemming from a near-collapse last year in the US sub-prime - high-risk - mortgage market, which undermined the value of billions of dollars in mortgage-backed securities. Banks subsequently became reluctant to make credit available to one another and to businesses and are now facing increased regulatory pressure.

Global financial stocks have led declines that wiped about $11 trillion from equity markets worldwide this year. Credit- related losses, surging oil prices and rising inflation have also stoked concern policy makers will have to raise borrowing costs as the global economy slows.

"We believe that regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors," Goldman analysts said. Under such circumstances, they said, "we are lowering 2008-2010 estimates for over 40 banks today and now stand on average 12 per cent below consensus."

The analysts said they do not expect the mounting write-downs per se to trigger additional capital calls at this point. "Instead, we believe that regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors."

Access to liquidity, capital adequacy and post-crisis profitability are the key areas of near to medium-term uncertainty, the analysts said in a note to clients.

European banks' share prices remain under pressure and the sector is weighed down by the risk for additional capital raisings to cover tighter capital standards, a more severe downturn in the European credit cycle, or a combination of both, the brokerage said.

Goldman Sachs cut its rating on Spain's Santander to "neutral" from "buy" and took down price targets for Deutsche Bank, Commerzbank, Deutsche Postbank and several others.

Shares of Santander were down nearly 3 per cent at €11.55, while Deutsche Bank, Commerzbank and Deutsche Postbank fell 1-1.9 per cent.


 search domain-b
  go
 
Goldman Sachs predicts dire future for European banks, predicts need for more capital