“There’s a huge potential stream of issuance to be done,” said Steve Hussey, who heads financial institutions research at AllianceBernstein in London. The company manages the equivalent of $473 billion. “If the requirements were implemented today then there would be significant shortfalls and pressure for issuance of all kinds of eligible capital.”
Using the 16 percent figure, the shortfall globally is about $375 billion, according to Hussey. At 20 percent, the requirement would be $870 billion, which he called “extreme.” He expects European lenders to have larger needs than the U.S.
JPMorgan and Wells Fargo & Co., may need to raise $127 billion to reach 18 percent of risk weighted assets, according to a note to clients from Barclays analysts, including Brian Monteleone in New York. HSBC, Europe’s biggest lender, and Spain’s Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA may be the only banks in the region affected, needing about $110 billion between them, according to the report.
BNP Paribas SA and HSBC may have shortfalls of $50 billion to $100 billion each, while Banco Santander will need as much as $90 billion, according to Hussey. Barclays will have to cover a gap of $25 billion to $50 billion, he said.
Debt Issuance
Thue Sondergaard, an analyst at Scope Ratings in London, estimates the shortfall in Europe alone at about 482 billion euros ($610 billion) if a 25 percent requirement is imposed, he said. His sample includes 41 banks and not just the biggest global lenders that some other estimates are based on.
European banks, including some second-tier lenders, will probably have to issue about 500 billion euros of senior debt through holding companies, if they have them, said Simon McGeary, who heads the new products group at Citigroup Inc. in London. Senior bonds issued through a holding company would be subordinated to the liabilities of an operating unit, he said.
“Banks should be able to replace existing debt with bail- in-able debt,” said Ed Firth, an analyst at Macquarie Group Ltd. in London. “Spreads have come in so much that the pricing differential is likely to be very small. Debt markets are in an extraordinarily generous mood.”