European bank shares fell on Friday as Deutsche Bank’s plans to tap investors for up to €9bn ($11.4bn) fuelled talk of a round of capital raisings by banks seeking to bolster their balance sheets.
Investors renewed their scrutiny of the health of Europe’s banks ahead of a meeting this weekend of global banking supervisors, who will adopt plans requiring banks to raise capital over the next few years to provide a stronger buffer against a future financial crisis.
Expectations that Deutsche Bank will next week announce plans to issue equity have cemented a belief that other European banks will also try to go to investors for capital to meet the new Basel III standards. “The key question is how many will follow Deutsche: if Credit Agricole or Société Générale do so, it will be big news. I’m a little more nervous now going into next week,” said a leading banks analyst.
Deutsche Bank, which has not officially confirmed the plans, is also likely to need capital to complete the acquisition of local competitor Deutsche Postbank. But the move was also taken as a sign that Europe’s banks – most of which passed stress tests two months ago – faced a worsening economic outlook that would hit earnings.
“We are very surprised that Deutsche Bank would come out with a capital raise at this point ... [it leads] us to the conclusion that [it] has developed a more conservative outlook on earnings,” said analysts at Bernstein Research.
Shares of banks in peripheral eurozone states, which analysts at Merrill Lynch said this week appeared most in need of capital, fell sharply, with Bank of Ireland, Spain’s Banco Popular, and Italy’s Banco Popolare all closing in the red. Analysts also pointed to those banks given state aid as possible capital raisers.
Shares in Deutsche Bank fell 4.6 per cent while shares in Postbank rose. Deutsche owns almost 30 per cent of Postbank and has agreed various options that could enable it to take control over the next two years. French banks saw their shares, however, rise slightly.
Some analysts said a capital increase could help to bolster confidence in Germany’s largest bank, which has faced repeated questions about its strength since the financial crisis, even as it has slowly built up its capital base without recourse to state aid.