Sluggish Canadian banks face stock sales to meet capital rules
With economic storm clouds gathering, Canada's bank regulator is considering stricter capital requirements that some analysts say have the potential to force Royal Bank of Canada, the nation's biggest lender, to sell equity.
The banks, which make up the largest sector weighting on the S&P/TSX Composite Index, have dropped 4.6% this year, compared with the 4.3% advance in the broader market as concerns rise about a downturn in the country's housing market and as quarterly results were largely a disappointment.
At the same time, the banks are running up against increasingly stringent rules in Canada, where the banking regulator has been raising minimum capital requirements. Currently, banks must keep a common equity tier one ratio of at least 11.5%. Analysts expect that ratio may climb to 12% in December, adding further pressure to the country's biggest lenders.
Some analysts see a scenario in which RBC may need to issue additional equity in order to meet that threshold because it is also seeking to close its CA$13.5-billion acquisition of HSBC Canada.