IMF: Banks Need More Capital
IMF officials speaking at the annual Davos conclave warn that global banks need to raise more money, noting that they face a "wall" of maturing debt in coming years.
Looking forward, even though some bank capital has been raised, substantial additional capital may be needed to support the recovery of credit and sustain economic growth.... Banks not only face the task of raising more capital, but also need to address potential funding shortfalls.Bingo. Despite suggestions that big banks are out of the woods, they have miles to go before they sleep. In the U.S., Citigroup (C) is particularly vulnerable. Moving to stay ahead of that approaching wall of bad loans, the company said earlier this month it would raise $14.5 billion in a stock sale.
Citi is also dispatching major shareholders to pry money loose from other large investors. Saudi Arabia's Prince Alwaleed bin Talal, the banking giant's biggest stockholder, recently met with Abu Dhabi officials. Late last year the city's sovereign wealth fund reneged on a deal to pump $7.5 billion into Citi. Just a guess, but I suspect that may have come up in discussions with the Prince.
Securing more capital isn't the only thing banks have to worry about, according to the IMF's latest financial forecast. Financial firms also have to cope with governments around the world beginning to withdraw central bank liquidity facilities and debt guarantees.
Unless the weaknesses in these banks are addressed in conjunction with the withdrawal of funding support measures, there is the risk of renewed bank distress and overall loss of confidence that could have systemic implications.Meanwhile, bank profits are likely to suffer as industry players continue writing down distressed assets, funding pressures rise and demand for new credit stagnates.
Miles to go.
