US, EU banks face rough year ahead

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WASHINGTON, Dec 21 (AFP): Stalling economies, crumbling assets, tough new capital rules and shrinking avenues to make money paint a rough year ahead for banks on both sides of the Atlantic. That spells bad news for the economies that depend on banks to fuel investment by industry and consumers. Banks in both regions are under the gun to raise hundreds of billions of dollars to strengthen their financial foundations, to meet the new Basel III standards on capital adequacy and liquidity, and to assuage ratings agencies threatening downgrades. In Europe, economies are already teetering on the edge of a new recession and the eurozone crisis has spiked banks' funding costs. So generating enough capital from earnings to meet Basel capital ratios could be downright impossible, raising the specter they will have to tighten lending-making it even harder for economies to grow, analysts say. American banks are better able to generate new capital needed from earnings, but the burden is likely to deeply impact returns for investors, analysts say. Although the US economy is growing, new regulations aimed at curbing the abuses that led to the 2007-2008 financial crisis, and new consumer protection rules, are cutting back business areas that were strong sources of pre-crisis banking profits. That means US banks will find it tough to make a buck as well. "All lines of business will see a sharp rise in capital requirements and a decrease in profitability," the Boston Consulting Group said in a banking industry survey last week. The entire industry is undergoing a sweeping change, said Ranu Dayal, one of the report's authors. "The banks have to think through the businesses they are in" for the future. The industry is facing "a broad attack on revenue sources," said Rodrigo Quintanilla, a banking analyst at Standard & Poor's. "The banks are trying to figure out how they are going to make money." Boston Consulting's survey of 145 banks worldwide said EU banks need 221 billion euros ($288 billion) in new capital to meet Basel III standards-three times the amount of new capital they have been able to raise since the financial crisis struck.