Fund-raising push speeds European banks' retreat

Europe's banks stepped up efforts to raise funds and offload business in far-flung places on Monday as Bank of Ireland sold a parcel of project finance loans and Credit Agricole said it will quit South Africa. European lenders are expected to ditch up to 3 trillion euros of loans to meet new capital rules, ease funding strains and become more profitable, and a flurry of deals showed efforts to "deleverage" are intensifying.
That is raising fears economic recovery efforts will be hurt, within Europe and in Asia and Africa. Credit Agricole is to close its 60-year-old South African unit as part of a retreat from far-flung corners. It is the fourth-biggest foreign bank in South Africa with a balance sheet of $2.2 billion and the business was profitable, but it will follow rivals in retrenching back to core operations.
"All the banks are doing the same. It's clear that all the corporate and investment banks have to reduce the number of countries, clients and products there are," Credit Agricole's country manager Guillaume Fay told Reuters. French banks are pulling back particularly hard as higher funding costs hurt. Typically near the top of global loan rankings, they have opted not to refinance some deals and have not been evident on syndicated loans they would usually be on, bankers have said. BNP Paribas is considering selling a private-equity portfolio, a source said on Monday, which the Financial Times earlier said could be worth more than $700 million.
France's banks and rivals in Britain, Germany, Spain, Italy and Ireland have pledged to sell assets and run off existing loans in a bid to shrink their balance sheets and respond to a sudden and dramatic squeeze on funding since the summer. The biggest shake-up will be in areas like project finance, shipping finance, aviation and infrastructure as banks seek to get rid of assets in US dollars, where funding is most tight.
The pressure intensified after Europe's banking regulator told banks they must hold core capital of 9 percent of risk-weighted assets by the end of June, much sooner than other regulatory deadlines. "This significantly increases the risk of the bank sector deleveraging. The chosen timeframe ... risks meaningful economic damage," Simon Samuels, analyst at Barclays Capital, said in a recent note.
Strains in bank funding markets could be as big a brake on lending as capital constraints, Morgan Stanley analysts warned. Bank of Ireland said it was selling project finance loans to Japanese bank Sumitomo Mitsui for 470 million euros ($624 million), a discount of 16 percent, as it seeks to shrink itself under an EU-IMF bailout.
Royal Bank of Scotland, majority state owned, has been selling off non-core assets for more than two years and is looking at a final set of bids for its $8 billion RBS Aviation Capital aircraft leasing business, sources said, while peer Lloyds is near to selling a package of commercial real estate loans worth around 600 million pounds ($929 million).