German banks welcome EU summit deal

27th October 2011, Comments 0 comments

German banks said Thursday they had done their part in tackling Europe's sovereign debt crisis and it was now up to politicians to make sure that a rescue plan agreed in Brussels was a success.

"In recent days and weeks, doubts about the ability of EU politicians to act were partly justified. But with the outcome of the two summits on Sunday and Wednesday, EU leaders have proven they can act," the German banking federation BdB said in a statement.

By offering to write off 50 percent of their holdings in Greek debt, banks "have made a substantial contribution to the success of the summit," the statement said.

"It is now up to the politicians to keep up the pressure on Greece and other troubled eurozone countries to reform. That is the only way to ensure that the debt haircut, the banking recapitalisation and the leveraging of the EFSF bailout fund will be a success," it said.

At a crunch summit in Brussels on Wednesday, EU leaders agreed that banks and private investors take a 50 percent loss or "haircut", slicing 100 billion euros ($140 billion) off the 350-billion-euro debt pile hampering Greece.

In order to prevent the Greek debt crisis from spreading, agreement was also reached to bolster the European Financial Stability Facility (EFSF) rescue fund by up to one trillion euros, including with the help of China and Russia.

Also in the deal, banks will be required to beef up their capital resources so that they can absorb the losses on their holdings of Greek debt.

The EU leaders agreed that banks must reach a "core Tier 1" capital ratio of 9.0 percent by mid-2012, two percentage points higher and seven years earlier than under new international banking rules recently agreed in the Basel III regulators accord.

The European Banking Authority calculated that banks would need an extra 106 billion euros to reach this requirement.

Germany's second-biggest bank Commerzbank said it would not need public money to do so, but would sell risky and non-essential assets and retain profits instead.

"We can reach the required ratio by means of a reduction in risk-weighted assets in non-core areas, the sale of non-strategic assets or retained earnings, for example," Commerzbank's chief financial officer Eric Strutz said in a statement.

"One thing goes without saying: We do not intend to make use of public funds," Strutz said.

During the last financial crisis in 2009, Commerzbank made use of government aid and the state now holds a 25-percent stake in its share capital.

It is one of the German banks most heavily exposed to Greek debt and will therefore have to take heavy writedowns as part of the agreed "haircut" of 50 percent.

Its bigger rival, Deutsche Bank, will similarly achieve the capital ratio requirement "without taking supplementary measures," financial chief Stefan Krause said earlier this week.

© 2011 AFP

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