STOCK MARKET WATCH -- Monday, 15 September 2014

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31. European Banks Get New Capital Hit From Accounting Rule

http://www.bloomberg.com/news/2014-09-15/european-banks-get-new-capital-hit-from-accounting-rule.html

European banks already under pressure to strengthen capital ratios may have to hold off on distributing profit to shareholders because of new accounting rules on how loan losses are calculated.

The accounting requirement under the International Financial Reporting Standards, which goes into effect in 2018, would lower European banks’ capital levels by an average 2.7 percentage points, according to a study published Sept. 11 by Standard & Poor’s. That’s based on a survey showing banks expect their loan-loss reserves to rise by 50 percent, S&P said.

The new rules demand for the recognition of losses on loans when firms see early signs of trouble. Banks are nearing the end of a European Central Bank review of their books to see if they’re underreporting bad loans. Some firms increased reserves this year in expectation of the ECB’s findings.

“This new model will be on top of the cleanup they’re in the middle of doing,” said Jonathan Nus, one of the S&P study’s authors. “The ECB review will take care of the legacy losses and this new rule will take care of the future expected ones.”