(Submit Articles) Satori Group: Will banks cut lending or return to the markets, caps in hand, to raise capital for new tier 1 ratios?
As central bank governors and regulators met to agree a deal at forces banks to hold more capital in reserve, “Satori Group“ analysts said that there was a distinct possibility that they could further restrict lending to businesses and individuals and thereby help reverse the sluggish economic recovery in developed countries if rights issues flopped.
The current "tier one capital ratio" is 4%. This ratio refers to a bank’s ability to absorb future losses and is generally comprised of “quality“ assets including its stock and earnings. The new deal being thrashed out will almost double the percentage banks must have in reserve to 7% but “Satori Group“ is concerned that some banks will be unable to secure this additional capital through rights issues.
Goran Jugovitch, Senior vice president at “Satori Group“, said “It’s not going to be easy for certain players. Many investors believe that banks are headed for a tough time as most of the economic recoveries in developed countries are slowing down quite notably. That means delinquencies on mortgages, loans and credit cards could lead to big write-downs and that’s not even counting the toxic assets some banks still hold that, conveniently, aren’trequired to be marked-to-market in the US any more. Consequently, we are advising our clients to swerve any rights issues especially from European and US banks.“
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