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Analysts say Barclays , HBOS and others may need further new capital to survive a recession
Barclays, HBOS, and other British banks may have to raise further new capital to cover escalating losses on toxic debt and meet fresh needs if the economy slides into recession, according to analysts at Merrill Lynch.
The US investment bank said the European banking sector as a whole had not yet revealed the full damage from US mortgage debt, warning that lenders across the region may face another $120billion in write-downs.
"We do not believe in a V-shaped recovery for bank shares. We fear they could weaken again in coming months as more bad news comes through," he said Stuart Graham, Merrill's chief European bank strategist.
"We see a danger that European banks will have to raise new capital, though how bad it will be depends on what happens to US house prices. Barclays and HBOS may be among them.
"We are concerned about their starting level of capital and the low level of mark-downs on structured credit," he said.
Barclays may need to write down £1.5 billion more over the next 18 months, analysts at Goldman Sachs said adding the bank has little room to absorb further material losses without the dividend potentially being cut or paid in shares.
Another brokerage, Cazenove, downgraded Barclays to "in-line" from "outperform," citing share price outperformance, and said though the bank had performed well given the disruption in financial markets, it still faces a weak economic outlook and lower balance-sheet gearing.
Goldman Sachs also said it remained concerned about the bank's capital position.
Barclays' interim results were disappointing as the weak underlying performance, excluding Barclays Capital revenue, were only saved by a strong performance on costs, Goldman Sachs said.
Last week, Barclays reported a 33% drop in first-half profits after taking a £2 billion writedown on the value of risky assets, and said challenging market conditions are likely to last through 2009.
The report showed that mix of US property debt is relatively benign, since much of it relates to earlier vintages where default rates are lower.
Most of Barclays' £3,738m exposure to residential mortgage backed securites (RMBS), which stems from subprime and Alt A debt, comes from the 2005 vintage or earlier. This is marked down to 76%. The 2006 vintage is fare worse: marked down to 30%.
Barclays also has almost £11billion of commercial mortgages, £2.6billion of monoline insurer exposure, £5billion of net leveraged finance, and a mix of other instruments.
On Barclays' credit market exposures, there is the potential for up to £4.6 billion of further write-downs, Goldman added.
It raised its price target on the stock to 340 pence from 320, and reiterated its "sell" rating.
Cazenove, however, said the bank's first-half results were less pronounced than at many competitors, and write-downs taken by Barclays were broadly consistent with the range of figures disclosed by rivals.
Barclays was the best performing major European bank in the third quarter, with a share-price rise of 21%, Cazenove said.
"It (the shares) now trades at a premium to peers and, with no specific catalyst in view, we expect a period of share price consolidation," it said.
The US investment bank said the European banking sector as a whole had not yet revealed the full damage from US mortgage debt, warning that lenders across the region may face another $120billion in write-downs.
"We do not believe in a V-shaped recovery for bank shares. We fear they could weaken again in coming months as more bad news comes through," he said Stuart Graham, Merrill's chief European bank strategist.
"We see a danger that European banks will have to raise new capital, though how bad it will be depends on what happens to US house prices. Barclays and HBOS may be among them.
"We are concerned about their starting level of capital and the low level of mark-downs on structured credit," he said.
Barclays may need to write down £1.5 billion more over the next 18 months, analysts at Goldman Sachs said adding the bank has little room to absorb further material losses without the dividend potentially being cut or paid in shares.
Another brokerage, Cazenove, downgraded Barclays to "in-line" from "outperform," citing share price outperformance, and said though the bank had performed well given the disruption in financial markets, it still faces a weak economic outlook and lower balance-sheet gearing.
Goldman Sachs also said it remained concerned about the bank's capital position.
Barclays' interim results were disappointing as the weak underlying performance, excluding Barclays Capital revenue, were only saved by a strong performance on costs, Goldman Sachs said.
Last week, Barclays reported a 33% drop in first-half profits after taking a £2 billion writedown on the value of risky assets, and said challenging market conditions are likely to last through 2009.
The report showed that mix of US property debt is relatively benign, since much of it relates to earlier vintages where default rates are lower.
Most of Barclays' £3,738m exposure to residential mortgage backed securites (RMBS), which stems from subprime and Alt A debt, comes from the 2005 vintage or earlier. This is marked down to 76%. The 2006 vintage is fare worse: marked down to 30%.
Barclays also has almost £11billion of commercial mortgages, £2.6billion of monoline insurer exposure, £5billion of net leveraged finance, and a mix of other instruments.
On Barclays' credit market exposures, there is the potential for up to £4.6 billion of further write-downs, Goldman added.
It raised its price target on the stock to 340 pence from 320, and reiterated its "sell" rating.
Cazenove, however, said the bank's first-half results were less pronounced than at many competitors, and write-downs taken by Barclays were broadly consistent with the range of figures disclosed by rivals.
Barclays was the best performing major European bank in the third quarter, with a share-price rise of 21%, Cazenove said.
"It (the shares) now trades at a premium to peers and, with no specific catalyst in view, we expect a period of share price consolidation," it said.
Thu, 14th Aug 2008