Big banks suffering big losses look to raise big money to shore up capital levels

Big European banks are facing a multitude of challenges in the post-crisis world, including tougher regulatory demands, failure to match the success of their US rivals, as well as losses of market share and slow reforms. The huge financial losses reported for this year by some of the big European players in the banking sector, with the most recent example being Deutsche Bank AG (ETR:DBK), have added to concerns over the present and future of these institutions.

The Financial Times reports that big banks that have suffered such hefty losses are now seeking to improve their capital levels by raising money.

The FT reports that Tidjane Thiam, the new CEO of Credit Suisse Group AG (VTX:CSGN), is planning to launch a substantial capital raising in two weeks’ time when he presents his strategic plan for the bank, according to people familiar with the matter.

The sources pointed to a poll published last week by Goldman Sachs showing that 91% of investors expect the Swiss bank to raise more than CHF 5 billion (USD 5.2bn) in new equity.

The move comes shortly after a warning by Deutsche Bank AG (ETR:DBK) that it was about to scrap its dividend for the first time since World War II after it suffered a €6.2 billion ($6.99 billion) net loss in the third quarter of 2015. The main reason for the loss were the hefty charges taken to support the restructuring being undertaken by new chief executive John Cryan.

The large-scale restructuring going on at the Swiss and German banks is another piece of evidence that Europe’s big investment banks are still having hard time to adjust to the post-crisis world and are lagging behind their US rivals. Facing tougher regulatory demands in Europe and being slower to implement reforms, European banks have lost market share in a number of areas.


Credit Suisse’s CEO, Tidjane Thiam

Credit Suisse’s fresh capital is likely to be used to cover losses triggered by a swift restructuring of the Swiss group, the sources familiar with Mr Thiam’s plan said. But the bank will also need higher capital ratios to meet toughening demands from regulators.

The Swiss authorities are expected to announce an increase of minimum capital ratios over the next months, which could be more challenging for the bank than for its better capitalised local rival, UBS AG (SWX:UBSN). Credit Suisse’s common equity tier one capital ratio of 10.3% is lower than UBS’s 13.5%.

Deutsche Bank’s ratio will be approximately 11% at the end of the quarter. Although this level is above what it is required it is below that of the majority of its international rivals.

Mr Thiam, who started in his new role in the summer, is about to make his announcement on Credit Suisse’s strategy on October 21, 2015. His plans are expected to shift the bank’s focus away from volatile investment banking operations and towards private banking and Asian markets. The ex-head of UK insurer Prudential plc (LON:PRU) is also seeking to establish a substantial in-house asset management operation.

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