Europe’s banks need to head back out on the fund-raising circuit. They may have to bring in as much as $141 billion, according to Goldman Sachs. Reuters writes that this capital will be necessary "to reach an aggregate Tier I ratio of 9 percent — a level achieved by European banks that have recapitalized recently."
Since the problems that the banks on the continent face are not much different from those in the US, the report begs the question of what will happen in America. The troubles of sub-prime mortgage paper, deteriorating credit, and LBO loans cross borders, and they have been no less acute in the United States than in the EU.
The banks and brokerages here that remain the most vulnerable are still Citigroup (C), Bank of America (BAC), Wachovia (WB), Merrill Lynch (MER), and Lehman (LEH). Many of these have tried to convince Wall St. that they are OK, but investors do not believe that, if share prices are any indication.
The victims of the need to raise more capital will be shareholders, once again. Citigroup has recently moved to a 52-week low of $16.25 compared with a period high of $52.97. New management there has said that it will make substantial changes to save money. Most of that has not happened and many in the market wonder why it is taking so long.
Another recapitalization at Citigroup could certainly move its shares to under $10. At some point soon it may be worth no more than the Bailey Building & Loan Association.
Douglas A. McIntyre
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