g. sachs raises concerns for 40 european banks

Goldman Sachs lowers estimates on 40 European banks

2 days ago

PARIS (AFP) — The US investment bank Goldman Sachs has lowered its 2008-2010 forecasts for more than 40 European banks, warning Friday that some of them may have to raise between 60 and 90 billion euros to shore up finances in the face of a nearly year-long credit crisis.

Goldman Sachs analysts said in a note that European banks under their scrutiny had sustained asset writedowns of 134 billion dollars (85 billion euros), offset by capital increases of about 115 billion dollars.

Big banks and finance institutions around the world have suffered losses and writedowns stemming from a near-collapse last year in the US subprime -- high-risk -- mortgage market, which undermined the value of billions of dollars in mortgage-backed securities.

Banks subsequently became reluctant to make credit available to one another and to businesses and are now facing increased regulatory pressure.

"We believe that regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors," Goldman analysts said.

Under such circumstances, they said, "we are lowering 2008-2010 estimates for over 40 banks today and now stand on average 12 percent below consensus."

Pressure on levels of capital holdings, either self-imposed or applied by regulators or ratings agencies, could force European banks to raise 60 billion euros or withhold one year of dividends, according to the study.

But it added: "If in addition to regulatory tightening, the sector returns to the early 1990s level of credit losses, we estimate that the capital shortfall could amount to 90 billion euros."