Lenders have until the end of today to tell national regulators how they plan to meet the capital targets, which will then be discussed by the European Banking Authority, the agency that drew up the rules, at meetings with supervisors in London on Feb. 8-9, the EBA said.

“Banks want to be autonomous from governments and they value this higher than some business lines,” Nicolas Veron, a senior fellow at Bruegel, a Brussels-based economics research group, said in a telephone interview. “At this point, however, no option is attractive. That’s why we see the turmoil in the banking sector.”

Shares in Commerzbank AG (CBK), Germany’s second-largest lender, rose 15 percent yesterday after the bank said it’s more than halfway toward its capital goal without resorting to government aid. Analysts at Citigroup Global Markets Inc. said on Jan. 10 they would “struggle to see how” the bank could meet the 5.3 billion-euro ($6.9 billion) requirement without state aid.

The EBA told banks last month to raise 114.7 billion euros in fresh capital by the end of June as part of measures introduced to respond to the euro area’s fiscal woes. Lenders should look to bolster reserves by cutting bonuses, retaining earnings or issuing shares, it said. Commerzbank said it had fulfilled 57 percent of its EBA requirement by the end of 2011 through retained earnings of 1.2 billion euros and reducing risk-weighted assets.

Spanish Shortfall

Spanish lenders must raise 26.2 billion euros in core Tier 1 capital, the EBA said in December, more than any other European country. Banco Santander SA (SAN), Spain’s biggest bank, was required to plug a 15.3 billion-euro shortfall.

The bank said Jan. 9 it had met EBA’s requirements as it sold stakes in South American lenders, issued new stock in exchange for preferred shares and paid dividends in shares. The bank is also counting 6.83 billion euros of bonds sold to retail customers that automatically convert into shares.

Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, will “comfortably achieve” its goal using retained earnings and adjusting risk weights, Chief Financial Officer Manuel Gonzalez Cid said in a presentation in Madrid on Jan. 11.

Discounted Prices

UniCredit SpA (UCG), Italy’s biggest bank, sought buyers for new shares at a discounted price of 1.943 euros apiece on Jan. 4 as part of its capital raising plans. Shares in the lender sank to a 23-year low of 2.286 euros in the days following the announcement.

No more Italian banks will propose a share sale to plug their capital shortfalls, Giuseppe Mussari, chairman of Italy’s Banking Association, said on Jan. 18.

Bank capital requirements are usually given as a ratio of their reserves compared with loans weighted according to their riskiness. That means lenders can boost their capital ratios by cutting risk-weighted assets.

The EBA has said it would only approve asset sales that “do not lead to a reduced flow of lending” to the European Union’s “real economy.”

The EBA may eventually loosen requirements to hold reserves against certain sovereign bonds, Huw Van Steenis, a Morgan Stanley analyst, said in a research note yesterday. The EBA may signal “a possible relaxation of the sovereign mark-to-market haircut,” according to the note.

The need “to maintain the buffer, and its size, will be reviewed if and when the policy measures to fight the sovereign- debt crisis have an effect on the price of government bonds,” Andrea Enria, the EBA’s chairman, said in a speech earlier this month.

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@Bloomberg.net

http://www.bloomberg.com/news/2012-01-20/banks-may-opt-to-spurn-state-bailouts-to-meet-eu-capital-targets.html

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