German banks seen likely to raise capital only as last resort

Reuters
German Commerzbank headquarters are pictured through a mirrored artwork ahead of Commerzbank annual news conference in Frankfurt
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German Commerzbank headquarters are pictured through a mirrored artwork ahead of the Commerzbank annual …

By Jonathan Gould

FRANKFURT (Reuters) - German banks are more likely to restructure than turn to the capital markets for more cash ahead of upcoming stress tests, bankers and analysts said on Friday, a day after the country's top regulator Bafin said some banks may face a shortfall.

Any banks struggling to meet regulatory requirements will retain profit, cut dividends, sell risky assets or rebalance their capital structure as the test-date approaches, analysts said.

"Waiting for the results could be risky," said Stefan Best, managing director at ratings agency Standard & Poor´s in Frankfurt. "Just imagine that several weaker banks would need to raise capital at the same time."

The European Central Bank (ECB) will conduct asset quality reviews (AQRs) of the euro zone's 128 largest lenders as part of a comprehensive assessment before it takes over supervising them from national authorities in November.

The AQR will become those banks' starting point in stress tests, which the European Banking Authority (EBA) will coordinate in all 28 EU countries, subjecting them to scenarios such as a stock market crash or abrupt change in interest rates.

Bafin President Elke Koenig said on Thursday the tests "could unearth additional capital needs at some banks."

Precise parameters for the tests, which run banks' balance sheets through tough scenarios designed to test their robustness, have yet to be decided by the ECB.

WILD CARD

Deutsche Bank is often cited as needing to fortify its capital base over the medium term, but few analysts expect the stress tests will pose any risk for Germany's biggest lender.

Commerzbank is also widely viewed as standing strong enough to survive the tests, although its exposure to the troubled shipping sector could prove a wild card, depending on how the ECB calibrates shipping risk.

"Raising new capital is not going to be a big issue because those who may need it - and this depends on the parameters of the stress tests - are most likely not listed on the bourse," said analyst Philipp Haessler at brokerage Equinet.

"(But) I wouldn't rule out that Commerzbank might require more capital, depending on how the stress tests are calibrated because of their large shipping portfolio," Haessler said.

Commerzbank and Deutsche Bank declined comment.

That leaves smaller banks as possible candidates for capital-boosting measures. Two banks to come under the magnifying glass ahead of the stress tests are HSH Nordbank and IKB .

HSH was the recipient of a 10 billion euro (£8.2 billion) "risk shield" from its state owners in the financial crisis. It is also still struggling with its heavy exposure to the shipping sector, but asserts it will face no trouble with the stress tests.

"We don't need any more capital. We are totally comfortable with our capitalisation level," a spokesman said.

One of the few banks to publicly express its doubts is IKB, one of the highest-profile casualties of the financial crisis and the smallest German bank to be deemed important enough to be supervised by the ECB.

IKB in December said the capital requirements were "surprisingly harsh (and) left banks little time to react." The bank declined to comment further on Friday.

(Writing by Thomas Atkins; Editing by David Holmes)

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