CS Credit Suisse Group

By Max Colchester and John Letzing 

Two big European banks face a painful choice in the coming weeks: whether to tap shareholders for funds despite plummeting share prices.

Standard Chartered PLC and Credit Suisse Group AG are considering raising equity, according to analysts and people familiar with the matter. The moves come as regulators continue to pressure banks to shore up their balance sheets as European growth remains muted, commodity prices crash and Asia slows.

Both banks recently appointed new chief executives who are reviewing their strategies, potentially paving the way for cash calls. But the timing for issuing equity is far from ideal. Markets continue to seesaw and many European bank stocks have dropped in value over the year with the Euro Stoxx European banks index down 15%. Banks have boosted their buffers but it is still unclear how much more capital regulators want them to hold, said Edward Firth, head of European bank research at Macquarie Group. Those at "the bottom of the pile are always under focus, " he said.

Standard Chartered is among the European banks most exposed to both China and commodities. The Bank of England is completing a balance sheet health check, with results set to be presented in December. Some analysts expect Standard Chartered, under recently appointed Chief Executive Bill Winters, to tap shareholders ahead of the stress test results. The bank could raise as much as $8 billion, says Joseph Dickerson, an analyst at Jefferies Group.

Mr. Winters wants to avoid going down that path, according to people familiar with the matter. Standard Chartered's share price has tanked 45% over the last 12 months, meaning existing stock could be heavily diluted by any share issuance. "If we decide we need capital for the long-term benefit of the Group, we will raise capital. If we decide we don't need it, we won't," said Mr. Winters during the bank's half-year results in August. The bank could cut its dividend or sell parts of its business instead, analysts say. A Standard Chartered spokesman declined to comment.

Another bank being closely watched is Credit Suisse. The Swiss bank's new chief executive, Tidjane Thiam, could announce a capital hike during a public briefing scheduled for Oct. 21, says Kepler Cheuvreux analyst Dirk Becker. That may be anywhere from 2.3 billion Swiss francs ($2.36 billion) to 15.2 billion francs, says Mr. Becker. A small increase is unlikely to upset investors but won't do much to cheer them, either--however a big hike coupled with a bold strategic move such as a large acquisition may actually move the stock higher, the analyst said. Shares of Credit Suisse have fallen around 17% since August. The potential hike comes as Swiss authorities consider tightening regulatory rules for Credit Suisse and Zurich-based rival UBS Group AG, both of which run sizable investment banks. A spokeswoman for Credit Suisse declined to comment.

With the recent market turmoil some big banks are opting to sell chunks of their businesses or cut dividends rather than to issue shares. Deutsche Bank AG, which has tapped shareholders twice for fundraising since 2013, plans to sell businesses, including the mass retail-banking unit Postbank, exit countries and shrink its investment bank. Deutsche Bank Chief Executive John Cryan said in July that raising capital wasn't in the interest of shareholders. Spain's Banco Santander SA this week said it would further boost its capital levels following a EUR7.5 billion ($8.42 billion) equity raise in January. Bank executives also said they would continue to cut costs and analysts expect it to also sell underperforming units.

Banks could save face with investors by issuing debt instead. The market may be flooded this year with bonds that convert into equity in times of stress, says Chirantan Barua, an analyst at Bernstein Research.

Write to Max Colchester at max.colchester@wsj.com and John Letzing at john.letzing@wsj.com

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(END) Dow Jones Newswires

September 25, 2015 04:26 ET (08:26 GMT)

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