–Adds Comments From EU Summit Statement And EU Polish Presidency

BRUSSELS (MNI) – European Union leaders have agreed on a bank
recapitalization plan, but the deal will only go ahead when the other
parts of the EU’s crisis package are completed, UK Prime Minister David
Cameron told reporters Wednesday evening.

On his way out of the summit meeting of the 27 EU leaders, which
ended a few minutes ago, Cameron said, “we made some good progress
tonight on the bank recapitalization.”

He added that the accord “wasn’t watered down, it has now been
agreed, [but] it will only go ahead when the other parts of the full
package go ahead. and further progress on that needs to happen tonight.”

The 17 Eurozone leaders are now meeting to try and strike a deal on
leveraging the limited funds of Europe’s bailout fund, the EFSF, and on
the size of the haircut that private banks will be asked to absorb on
their sovereign Greek bond holdings.

So far, there seems to be no consensus on the size of the
writedown, and several officials have indicated that there might not be
specific figures announced tonight. Banks and governments, especially
Germany, are at loggerheads over the issue. The bankers want to limit
their Greek debt writeoffs to little more than 42% while Germany’s
Angela Merkel has been pushing for 60%.

The bank recapitalization plan is closely intertwined with the size
of Greek debt writeoffs, since those will determine banks’ capital
needs. And they are in turn closely connected to the issue of leveraging
the EFSF, since the firepower required by the bailout fund will be
dictated to a large extent by banks’ needs and by the degree to which a
debt writeoff in Greece leads to contagion in other vulnerable Eurozone
states, which might then need help from the EFSF.

A statement issued after the close of the EU heads-of-state meeting
said there was “broad agreement” on requiring a Tier 1 capital level of
9%, which would apply to banks of “systemtic importance” as of June
2012. The new capital ratio will take account of banks’ sovereign debt
exposures as of Sept. 30.

Jacek Rostowski, finance minister of Poland, which currently holds
the EU presidency, told journalists that the amount of new capital banks
would have to raise would be specified by the European Banking Authority
and not disclosed at the summit.

The statement said national banking regulators would ensure that
efforts to raise capital would not lead to “excessive deleveraging,
including maintaining the credit flow to the real economy.”

Polish Prime Minister Donald Tusk said that the bank
recapitalization plan depended on other parts of the Eurozone rescue
package and that he was “very cautious” about the prospects for all
elements of the plan being decided at the summit.

As expected, the statement said that banks would have to find
private sources of new capital, including restructuring and converting
debt to equity. If banks were unable to raise capital, the statement
said that national government would provide support, and if that was not
possible, Eurozone banks could seek loans from the EFSF.

European Central Bank Executive Board member Juergen Stark,
speaking in Dortmund, Germany earlier today, said that in his view bank
recapitalization was absolutely essential for solving the Eurozone debt
crisis. “Recapitalizing the banks is key to breaking this vicious
cycle,” he said.

–Angelika Papmiltiadou; A_papamiltiadou@hotmail.com
–Jack Duffy; jduffy@marketnews.com
–Nick Mackie; nmackie@marketnews.com

[TOPICS: M$Y$$$,MGX$$$,M$X$$$,M$$CR$,MT$$$$]