Yep. Another day and (yet) another note on the impact of the Basel proposals.
And this one is pretty frightening.
Morgan Stanley’s Huw van Steenis reckons Europe’s big banks will need to find €83bn by 2012, or shrink their risk-weighted assets by 11 per cent, or €1,000bn.
Here are the key conclusions from his 115-page report, which hit clients’ desk on Wednesday morning:
#1 We think the market has underestimated the impact of Basel proposals on distributions and this, plus political uncertainty, means dividends will be very constrained. We cut dividend forecasts for DBK, CASA, CSG, GLE, BBVA, UCG, ISP, BNP, POP & KBC.
#2 Even with what banks view as the “obvious” amendments (eg minorities) the proposals could still hit European banks hard – and hence we think revisions or “national interpretations” are likely. Excluding revisions or management action, we calculate banks may need €83bn extra capital by 2012, or have to shrink RWAs by 11% (ie €1.0trn). We think banks would be likely to reprice loans and reduce credit further – we already model less than 1% loan growth for European banks in 2010. We think Basel 3 and US proposals could mean – unless amended – corporates face a higher cost of credit and need to take on more liquidity risk, as the banks are asked to shed risk.
#3 We think US Volcker proposals would, if enacted, be another brake on US large cap bank earnings (3-5% each for large cap US banks). This said, we think US banks may outperform European, as funding and capital/dilution concerns should be more intense in 1H, but we see more risk of upgrades from credit recovery.
More in the usual place.