Banks ‘may need to raise capital’

However, banks in Greece, Italy, Ireland, Portugal, and Spain would struggle to raise capital, Goldman analysts said.

“Here, capital would need to be provided by the sovereign (leading to partial or full nationalisations) or by multinational institutions,” they added.

The analysts lowered their price targets on several European banks, including Italy’s UniCredit, Spain’s Banco Santander and Greece’s Agricultural Bank of Greece SA.

Goldman analysts said they do not see a meaningful capital shortfall for European banks if no ‘haircuts’ are imposed.

“On the other hand, the midpoint of our ‘sovereign shock’ scenario would result in 38 banks requiring 30-92 billion euros of capital, at the 5 to 7 per cent Core Tier 1 cut-off level,” they said.

Earlier this week, Deutsche Bank chief executive Josef Ackermann said many European banks could go under if they had to accept a ‘haircut’ at current market valuations on their entire sovereign debt holdings instead of the 21 per cent writedown that has been proposed on Greek sovereign debt.

European banks in July agreed to contribute to a rescue plan for Greece by taking a 21 per cent loss on bonds maturing before 2020. The deal prompted banks to take a loss on their bonds in second-quarter results. The European sovereign debt crisis has kept banks hostage to market worries about their capital strength.