Monday, September 13, 2010

Basel III: Time Is On Bank's Side

Bloomberg News

Banks Rise as Basel Gives Firms Eight Years to Comply

Sept. 13 (Bloomberg) -- Bank stocks rose worldwide as regulators gave firms more time than analysts expected to comply with stiffer capital requirements aimed at preventing future financial crises.


JPMorgan Chase & Co. and Bank of America Corp. led the KBW Bank Index to a 2.6 percent gain at 12:35 p.m. in New York as 23 of the 24 companies climbed. France’s Credit Agricole SA and Dexia SA led gains in the Bloomberg Europe Banks and Financial Services Index, which rose 1.7 percent in London to a one-month high. The 224-company MSCI AC Asia Pacific Financials Index rose 2 percent, its biggest gain since July 6.

At a meeting in Basel, Switzerland yesterday, regulators reached a compromise that more than doubles capital requirements for the world’s banks, while giving them as long as eight years to comply. Germany had sought to give firms a decade to make the transition, while the U.S., U.K. and Switzerland pushed for a maximum of five years.

“The implementation period is much longer than expected,” Credit Suisse Group AG analysts including Jonathan Pierce wrote in a note to clients today. “The fact that the sector now has a greater degree of certainty about capital requirements going forward ought to act as a material positive catalyst.”

Seven Laggards

Of the banks represented in the KBW index, seven, including Bank of America and Citigroup Inc. would fall short of the new ratios based on calculations using the revised definitions of capital, Frederick Cannon, an analyst at KBW Inc. in New York, said in a Sept. 10 report. Sixty-one of the 62 largest U.S. banks would meet the new standards, Richard Bove, an analyst at Rochdale Securities LLC, said in a Bloomberg Television interview. He didn’t identify which one didn’t meet them.

The Basel Committee on Banking Supervision will force lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress. Banks that fail to meet the buffer would be unable to pay dividends, though they wouldn’t be forced to raise cash. Lenders will have less than five years to comply with the minimum ratios and until Jan. 1, 2019, to meet the buffer requirements.

The decision will reduce uncertainty about banks’ capital, and allow some to raise their dividends, Morgan Stanley analysts Henrik Schmidt and Huw van Steenis said in a report today.

To contact the reporters on this story: Yalman Onaran in New York at yonaran@bloomberg.net Michael J. Moore in New York at Mmoore55@bloomberg.net