EU readies coordinated banks' bailout push

The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default as Germany urges each country to prepare its own blueprint.

“We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” the commission’s president, Jose Barroso, told reporters in Brussels on Thursday. “Close coordination at European level is essential.”

Financial shares continued their advance after German Chancellor Angela Merkel fed speculation that euro policymakers are working on plans to boost bank capital. During a visit to Brussels yesterday, Merkel made her most explicit comments yet on banks’ role in fighting the crisis, saying that the European rescue fund should only be relied upon as a last resort.

“If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the EFSF rescue fund is “always tied to a certain conditionality.”

Merkel will hold talks from 3 pm in Berlin with International Monetary Fund (IMF) chief Christine Lagarde, World Bank president Robert Zoellick and Angel Gurria of the Organization for Economic Cooperation and Development, among others. European Central Bank President Jean-Claude Trichet is due to join the talks after chairing his last rate-setting meeting. The finance ministers of Brazil, Mexico and France will also take part.

FRENCH REPORT
France’s Le Figaro newspaper reported on Thursday that the French government is working on a contingency plan to take stakes in the country’s lenders. A government official rejected the report as false, without further explanation.

“Time is running out” to establish if recapitalisation is necessary, Merkel told reporters in Brussels. She said she backs recapitalising European banks “if there is a joint assessment that the banks aren’t adequately capitalised” and finance officials develop “uniform criteria.” Germany is ready to discuss possible bank aid at this month’s EU summit, she said.

Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues. Moody’s Investors Service followed its three-level downgrade of Italy on October 4 by warning that euro area nations rated below the top Aaa level may see their rankings cut.

GREEK ‘ADJUSTMENT’
Merkel also said that “if needed, there will be an adjustment” in investors’ share of a euro 159 billion ($212 billion) second aid package for Greece, pending a report by international auditors on Greece’s finances due before a meeting of European finance ministers next month.

France’s Natixis and BNP Paribas SA were among the biggest gainers on the 46-member Bloomberg Europe Banks and Financial Services Index, which added 3.4 per cent after yesterday’s 4.8 per cent advance. Natixis climbed as much as 13 per cent, while Paribas was up as much as 7.8 per cent.

European banks may need more than euro 140 billion of capital through a program similar to the US Troubled Asset Relief Program, Morgan Stanley analysts say.

“Policymakers increasingly want to build a large solvency buffer,” the analysts led by Huw van Steenis said in a note. “We think banks in core Europe need to be recession proofed and banks in the periphery depression proofed.”

EU officials are working on plans to boost bank capital to contain the debt crisis, the IMF said yesterday.

“There is no secret at all that European authorities and the European Commission are all working together on a plan to bring more official capital, more public-sector capital, into the banking sector,” Antonio Borges, the IMF’s European department head, said yesterday in Brussels. “We would recommend that it move to a European approach,” he said. “More should be done on a cross-border basis.”