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Recent market and regulatory trends require us to update the assumptions of our analysis. These reflect (a) changes to the refinancing LTV as evident from our recent lenders’ survey, and (b) the impact of upcoming regulatory reforms, in particular based on the International Monetary Fund’s estimated impact of the new European Banking Authority’s capital reserve rules.
Based on these revised assumptions, we estimate that over the next two years (2012-13) the global debt funding gap totals a gross USD216bn. The majority of this is in Europe at USD182bn. This includes USD107bn in additional equity required under the EBA rule which more than doubles Europe’s funding gap.
The new EBA rules have a greater impact on those markets which have up to now had relatively small funding gaps. France (USD25bn), Germany (USD26bn), the Nordics (USD13bn), Italy (USD13bn) and the Netherlands (USD 10bn) all see jumps in their funding gaps.
Authorities in Spain are taking steps to reinforce the capital adequacy of their banks. Given the similarities of Spanish loans to Ireland, we believe the current reduction in assets will be inadequate.
Globally there remains sufficient equity to bridge the funding gap. But, in Europe we have greater tension. The debt funding gap over the next two years of USD182bn is not matched by the USD109bn of equity. We estimate that non-banks lenders will add USD75bn of new lending capacity. This would shrink Europe’s funding gap to a net USD107bn, providing just sufficient equity to bridge the gap.
We are tracking loan sales with a value of over €30bn across Europe as banks move phase of their workout and focus on non-prime loans. With discounts on sales gradually rising as banks workout their non-prime loans, we expect the final sale price to be much lower.
Source : DTZ Groupe (UGL)
