Commerzbank, Intesa make headstart in capital race

By Edward Taylor and Ian Simpson

FRANKFURT/MILAN (Reuters) – Commerzbank (CBKG.DE: Quote, Profile, Research) and Intesa Sanpaolo (ISP.MI: Quote, Profile, Research) 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.

Commerzbank will be able to repay state aid the bank received during the financial crisis.

But the race for capital is likely to expose the haves and have-nots among Europe’s banks.

“There will be a polarization between banks that are well capitalized and have access to funding, and people who are more constrained on capital,” UBS investment banker Philippe Sacerdot told the Reuters Global Mergers and Acquistions Summit.

Analysts and investment bankers expected others 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 also cited speculation that Deutsche Bank (DBKGn.DE: Quote, Profile, Research) might raise capital as well.

Morgan Stanley said in a research note this week that the majority of investors it had polled expected Europe’s listed banks to raise over 40 billion euros this year.

Morgan Stanley said 26 percent of respondents to a poll of 800 investors at its European financial services conference in London last week expected listed banks would raise 40-50 billion euros of capital this year.

Fourteen percent expected 50-70 billion to be raised and 10 percent expected more than 70 billion.

PAYBACK TIME FOR STATE AID

In a two-step process, including a rights issue between May and June, Commerzbank plans to raise a total of 8.25 billion euros on the capital markets, while Intesa said it would raise 5 billion in a rights issue to increase its capital ratios.

Denmark’s biggest financial institution, Danske Bank (DANSKE.CO: Quote, Profile, Research), also said on Wednesday that its 20 billion Danish crowns ($3.83 billion) rights issue had been fully subscribed.

In Greece, ATEbank (AGBr.AT: Quote, Profile, Research), revealed terms of a 1.26 billion euro rights issue.

Shares in both Commerzbank and Intesa rose by more than 3 percent, 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.

The new cash for Commerzbank will help it repay state aid it received to get it through the crisis.

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.

OTHER ITALIAN BANKS MAY FOLLOW INTESA

European banks are facing a second round of stress tests this year after a 2010 health check was criticized 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.

A bank’s Core Tier 1 ratio should mainly comprise shareholders’ equity and retained earnings and is a measure of its ability to withstand times of economic stress.

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.”

He said the next in line for a capital increase could be Banca Monte dei Paschi di Siena SpA (BMPS.MI: Quote, Profile, Research), which barely cleared the European banks health check last year.

Italian rival Banco Popolare (BAPO.MI: Quote, Profile, Research) completed a 2 billion euro capital increase in February, while UBI Banca (UBI.MI: Quote, Profile, Research) said last week it would tap the market for 1 billion euros.

($1=.7006 Euro)

(Additional reporting by Christoph Steitz and Josie Cox in Frankfurt, and Sudip Kar-Gupta in London)

(Editing by Jane Merriman)

Commerzbank, Intesa make headstart in capital race