FRANKFURT/DUBLIN--A growing confidence that new bank capital rules are unlikely to be as stringent as many feared, and will allow years to implement change, buoyed European bank stocks on Thursday.
New capital rules--dubbed Basel III--to make banks resilient enough to cope with another financial crisis are due to be laid out on Sunday after international regulators worked out a compromise deal to put to central banks. Banks will need to have a minimum core Tier 1 capital ratio of 7 to 9 percent, including a capital conservation buffer, officials and regulatory sources have said.
That would include a minimum base core Tier 1 capital ratio of 4.5 to 6 percent and an additional capital conservation buffer of 2 to 3 percent. Any bank that fails to keep above the buffer would have to curb payouts such as bonuses and dividends.
"There seems to be a consensus building around 7 percent core Tier 1 ratio and the market is pretty well there already, in fact it's comfortably above it in many cases," said Chris Wheeler, bank analyst at Mediobanca.
"If we had a stronger economy and the markets were more robust then the regulators would probably be tougher, but you've got to balance the two and the risk of putting in jeopardy what is still a fragile recovery would not be a great idea," Wheeler added.
There were reports earlier this week the minimum capital levels would be higher, and earlier this year banks were facing a far tougher crackdown after a backlash against the industry.
"We think that the Basel III rules will be less harsh for the banking sector than feared 6-12 months ago," Andreas Zoellinger, co-manager of the BlackRock Euro-Markets Fund, told Reuters in an interview on Thursday. As a result Zoellinger said his fund had shifted its underweighting of the banking sector in early July.
Top banks are not expected to rush to raise funds, although there remain worries that banks in some countries face a long road to recovery and the changes will crimp lending. Ireland's efforts to contain the damage from struggling Anglo Irish Bank and Germany's Commerzbank warning it may have to raise capital showed that troubles will persist.
Commerzbank, Germany's second largest, said on Thursday it may need to raise new equity and take other steps as it aims to repay almost 20 billion euros ($25.41 billion) it owes to the government. "It will most likely not be one flower but a bouquet," Chief Executive Martin Blessing said of the steps required if the bank is to meet its repayment target of 2012.
A day earlier, European Central Bank Executive Board member Juergen Stark warned German lawmakers that the country's banks were undercapitalised, comments which hit the euro.