Europe News

European banks face a $153B capital hit: JPMorgan

Avoid commodity-exposed banks: JPMorgan

Europe's biggest banks could take a 137 billion euro ($153 billion) capital hit from new proposals by regulators, according to a report by JPMorgan Cazenove.

The new regulations on how calculating capital ratios – a key measure of a bank's ability to survive economic shocks -- could mean that lenders might run up a capital shortfall of up to 26 billion euro ($29 billion) by 2018, according to analysts at the U.S. investment bank in a wide-ranging report.

What change at the top means for Europe's big banks

The 26 billion euro figure, based on analysis of 35 of the most important banks on the continent, suggests that dividend payouts and riskier lending may face a squeeze if the proposals come into force. Banks may also have to sell off or reclassify some of their assets to meet their investors' expectations of what their Common Equity Tier 1 (CET1) ratio (capital relative to its riskier assets) should be.

"It will hurt competition, but it is a way to get a level playing field, in order to generate levels that are more comparable to the U.S." Kian Abouhossein, head of the team who wrote the report, told CNBC.

Banks which have a high exposure to commodity prices through lending and investments are particularly concerning, according to the JPMorgan team. This may be unsurprising given the recent plummets in price across global commodities.

Ralph Orlowski | Reuters

Both the European Central Bank (ECB) and the Swiss-based Basel Committee on Banking Supervision are currently working on plans to make sure that the methods used to calculate bank's capital ratios – a key measure of their stability which has gained more importance in the post-credit crisis world – are standardized and give banks less wriggle room in reporting their capital ratios.

The ECB, which has just taken over as the euro zone's banking regulator, is considering proposals to minimize national differences over how to measure capital.

What's missing from the EU bank stress tests

The bank which is most at risk of having to raise more capital on the stock market is Raiffeisen Bank, of Austria, which is likely to have a "significant capital deficit" of 1 billion euros if the new rules come into force, according to JPMorgan calculations.

French banks seem to do particularly poorly under this analysis. Credit Agricole is believed to be the most at risk within the European large caps banks, with a shortfall worth around 22 percent of its current market valuation under the analysis.

"The French banks' starting point on capital is very low, and as a result they look very weak in our analysis. There is some need to either shrink the balance sheet or cut the dividend," Abouhossein told CNBC.

He also highlighted Spanish banking giant Santander as in a risky capital position.

- By CNBC's Catherine Boyle