Tuesday 24 January 2017

Euro debt plan may hit Ulster Bank owner hard

Foreign-owned banks will shrivel

Published 16/10/2011 | 05:00

Europe's plans to resolve its massive debt crisis -- which includes a major capital revamp of its banks -- could leave the British bank, Royal Bank of Scotland (RBS), with a capital shortfall of almost €20bn, according to a Credit Suisse note circulated last week.

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The note also said that the new round of bank stress tests -- which are at the heart of the upcoming recapitalisation of the European banks -- could turn RBS into one of the most vulnerable banks in Europe.

The EU banking regulator, the European Banking Authority, will unveil details of its plans to recapitalise Europe's banks at an EU summit this Sunday.

Banks face capital requirements of as high as nine per cent under the new rules. About two-thirds of Europe's biggest banks could fail the new stress tests, according to Credit Suisse.

The recapitalisation could make the European banks more reluctant to lend money, according to Brian Devine, chief economist with NCB.

"European banks won't do much lending if they're deleveraging," said Devine.

Foreign-owned Irish banks could take the brunt of any retrenchment initiated by their parents on the back of the European bank recapitalisation plan.

"The more capital that's needed to plug a hole, the less money there would be to invest in foreign subsidiaries," said Hank Calenti, head of bank credit research with Societe Generale. "The consequences of the recapitalisation on foreign-owned Irish banks will depend on the strength of the parent."

RBS owns Ulster Bank, the third-largest bank in Ireland. A spokeswoman for Ulster Bank declined to comment on the impact that a €20bn shortfall at RBS might have on Ulster Bank. RBS also declined to comment on the Credit Suisse report.

If the recapitalisation forces European banks to retrench, it could further damage competition in the Irish banking market, as foreign-owned banks could pull back on their Irish operations, according to Devine.

Fitch Ratings last week downgraded the credit rating of Danske Bank, the Danish parent of National Irish Bank. Fitch also placed the Dutch bank Rabobank, which owns ACC Bank and Rabodirect, on negative watch -- a status given by credit rating agencies when they are deciding whether or not to reduce a company's credit rating. "The amount and type of capital that Rabobank can raise in times of stress is of some concern," said Fitch.

In a recent report, Fitch said that European banks faced a number of challenges, including the "costs and ambiguities of additional bank regulation and political pressure to reduce or eliminate implicit state support".

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