FRANKFURT/MILAN: Commerzbank AG and Intesa Sanpaolo SpA fired the starting gun for a new round of capital increases by Europe's banks that leaves weaker lenders in danger of falling behind.
The moves by Germany's second-biggest bank and Italy's top retail lender to raise 13.25 billion euros ($18.9 billion) follow demands from regulators for tougher bank capital requirements in order to prevent another credit crisis.
"A slew of banks will be raising capital in the second half of the year. We want to run ahead of the herd and not behind it," Commerzbank Chief Executive Martin Blessing told a journalist briefing in Berlin.
Commerzbank will be able to repay state aid the bank received during the financial crisis. Its share closed up nearly 2 percent.
But the race for capital is likely to expose the haves and have-nots among Europe's banks.
"There will be a polarisation between banks that are well capitalised and have access to funding, and people who are more constrained on capital," UBS investment banker Philippe Sacerdot told the Reuters Global Mergers and Acquisitions Summit.
Analysts and investment bankers expected other banks to follow suit, as European Union regulators sharpen up "stress tests" on the industry to ensure banks can survive another crisis or major economic downturn. Traders cited speculation that Deutsche Bank AG for instance might raise capital.
TWO STEP PROCESS
Morgan Stanley said in a research note this week that the majority of investors it had polled at its European financial services conference in London last week expected Europe's listed banks to raise over 40 billion euros this year -- and 10 percent expected more than 70 billion.
In a two-step process including a rights issue between May and June, Commerzbank plans to raise a total of 8.25 billion euros, while Intesa aims to raise 5 billion in a rights issue.
Denmark's biggest financial institution Danske Bank also said its 20 billion Danish crowns ($3.8 billion) rights issue had been fully subscribed.
In Greece, ATEbank, revealed terms of a 1.26 billion euro rights issue.
Shares in both Commerzbank and Intesa rose as analysts said the fresh money could help the companies keep top staff and develop their businesses in the near term.
"Of course it is positive that Commerzbank wants to repay a majority of its state loans, especially because its dependency will thereby by reduced significantly," said Markus Huber, senior trader at ETX Capital in Frankfurt.
"This should enable the lender to become more competitive once again, especially with regard to remuneration and bonus payments," added Huber.
Commerzbank said it would repay most of its 16.2 billion euros of state aid by June, which will help free it from government shackles such as a cap on bonuses.
Germany's bank restructuring law says limits on bankers' pay can be lifted if more than half of state aid is repaid, or if interest payments are met.
European banks are facing a second round of stress tests after a 2010 health check was criticised as too lenient.
Sources told Reuters last week that European banks would have to show a core Tier 1 ratio -- a measure of high-quality capital -- of at least 5 percent to pass.
Although Italian banks weathered the financial crisis relatively well, their capital ratios overall are at the bottom of the European sector. Bank of Italy Governor Mario Draghi has pressed lenders to raise capital and meet new capital rules -- known as Basel III -- ahead of schedule.
Intesa Sanpaolo's capital increase will boost its core Tier 1 ratio to around 10 percent from 7.9 percent, the bank said.
One Milan-based analyst said: "Intesa Sanpaolo is a 'system' bank and has reacted to Draghi's urging. This makes them stronger in comparison with other European banks." Intesa shares closed up 5.4 percent.
Banco Popolare completed a 2 billion euro capital increase in February, while UBI Banca said last week it would tap the market for 1 billion euros.
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