Banks in the US and Europe face a huge round of capital raisings to cover write-downs and deleveraging, according to strategists at Credit Suisse , who predict as much as $560bn (409bn) could be required. The forecasts come as French banks begin a second round of state recapitalizations.
In a normal banking crisis, Credit Suisse predicts that about 6% of gross domestic product would need to be written off. However, if the banking crisis turns out to be deeper - equivalent to the Finnish or Norwegian banking crises of the early 1990s - write-offs of about 10% of GDP would be required in the countries that have experienced housing booms.
In addition, the Swiss bank's strategists forecast that Europe and US banks will have to raise $200bn to return to average leverage levels, but this figure could rise to $560bn depending on the severity of the downturn.
Banks in France are preparing for a second round of capital injections by the state. BNP Paribas may receive a further 2.5bn ($3.4bn) in government support, the group's chairman Michel Pebereau said today in a radio interview.
The government recently pledged to invest a further 10.5bn in the country's largest banks to boost lending. France has already injected 10.5bn and now said it is willing to put up the same amount. Under the previous government plan, 2.55bn went to BNP Paribas.
Pebereau said the banks are working with the finance ministry on the conditions, but that BNP would likely be eligible for about the same amount.
Under the previous recapitalization plan, Crédit Agricole received 3bn, BNP Paribas 2.55bn, Société Générale 1.7bn, Crédit Mutuel 1.2bn, Caisse dEpargne 1.1bn and Banque Populaire 950m.
In a separate report yesterday, UBS analysts predicted a spate of rights issues by European banks this year as some seek to further boost their capital base and others move to cement a position of strength in the region.
They argue that for a bank to be deemed in a strong position, it would need equity tier one of more than 7%, a loan to deposit ratio of less than 110% and a deposit to assets of more than 50%.
UBS predicts that Spain's BBVA, BNP Paribas in France, Germany's Deutsche Bank and UniCredit in Italy are the most likely European equity issuers this year. Deals by these banks could dilute earnings per share and net asset value by 15% to 50%, according to UBS estimates.
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