By Steve Slater
LONDON (Reuters) - Europe's banks were told to cut dividends and bonuses to help them find 106 billion euros ($146 billion) to shore up their capital, and agreed to halve the value of their Greek government debt, sending their shares sharply higher.
After tense talks that ran to the early hours of Thursday, the agreement by private sector investors to take a 103-billion euro hit on their Greek bonds marked a breakthrough for EU leaders trying to halt a eurozone debt crisis from spreading.
"It's short on detail but it's progress," said Simon Maughan, head of trading for Europe at MF Global.
"There's a fairly defined timeline to deal with this. The banks have to raise all of the money by the end of June, so they've got to get on with it," he added.
Bank shares jumped on relief that the deadlock had been broken. By 0720 GMT the STOXX European bank index was up 4.4 percent.
"Agreement has emerged which should give markets reassurance that politicians are finally mindful of the urgency of putting sufficient measures together to prevent further contagion of the credit crisis into core European," said Vivek Raja, analyst at Oriel Securities.
Banks in Spain, Italy, France, Portugal, Greece and elsewhere were told they needed to recapitalize to be able to better withstand eurozone sovereign bond losses and an economic downturn.
The amount needed was in line with expectations, though Spanish banks need more than many analysts' forecast, at 26 billion euros.
Seventy banks were tested, but the European Banking Authority (EBA) did not break down how much each lender needs, although some announced details.
Spain's BBVA <BBVA.MC> said it needs 7.1 billion euros. Santander <SAN.MC> declined to say how much it needs, but it could be a similar amount to BBVA, analysts said.
France's BNP Paribas <BNPP.PA> requires 2.1 billion euros, Societe Generale needs 3.3 billion and BPCE, the mutual that owns Natixis <CNAT.PA>, is in need of 3.4 billion.
Other major banks expected to need to bolster capital include Italy's UniCredit <CRDI.MI> and Germany's Deutsche Bank <DBKGn.DE>, although the latter has said it will be able to meet its shortfall without any state help.
Shares in BNP Paribas, SocGen and Deutsche Bank rallied over 7 percent due to their modest capital needs, while Credit Agricole <CAGR.PA> jumped 10 percent as it did not need funds.
Capital raising by the banks is expected to be limited. Of the sum needed, 30 billion euros is already being provided to Greek banks under an aid plan.
Portugal's banks need 7.8 billion euros, and that country is also already receiving aid to help its banks. Belgium's Dexia <DEXI.BR, which needs 4 billion euros, is also being restructured with state help, as it Volksbanken, which accounts for much of Austria's 3 billion euro need.
If banks at risk of a capital shortfall cut dividends this year and next it could save about 32 billion euros, analysts at Credit Suisse estimated earlier this week.
Asset sales and debt liability management plans will provide further cash. Some deleveraging -- as long as it is not what the European Banking Authority deemed "excessive" -- will lift capital ratios further.
That could see banks needing to raise less than 30 billion euros from investors. With European bank shares trading at an average 0.6 times book value, any capital raising would be painfully dilutive for investors.
($1 = 0.724 Euros)
(Reporting by Steve Slater; Editing by David Hulmes and David Cowell)