UPDATE 2-Canada banks say can handle Basel rules; shares up

* Basel III rules easily adoptable, banks say

* New rules meant to avoid repeat of crisis

* Canada bank stocks extend recent gains
(Adds comments from regulator and CBA, updates shares)

By Cameron French

TORONTO, Sept 13 (BestGrowthStock) – Canadian banks said on Monday
they expect to be able to adopt new Basel III rules for
maintaining reserve capital with little trouble, meaning
dividend hikes and share buybacks could be on the way once
Canada’s banking regulator gives the go-ahead.

Global regulators in Switzerland, aiming to prevent a
repeat of the international credit crisis, agreed over the
weekend on new capital rules that, while tighter than before,
were not as harsh as some had feared. [ID:nLDE68BOJE]

Shares of Canada’s big lenders, which have been rising
steadily for the past two weeks on increased optimism over the
banks’ capital positions, extended gains on Monday morning. The
bank-heavy TSX financials index (.SPTTFS: ) was up 1.2 percent
around midday.

“Based on our first read, we’re encouraged by the
announcement and feel very comfortable in meeting these
standards within the established timelines, given where our
capital ratios stand today,” Janice Fukakusa, chief financial
officer of Royal Bank of Canada (RY.TO: ), said at the Barclays
Financial Services Conference in New York.

Her comments were echoed by other Canadian banks presenting
at the conference.

Under the agreed Basel rules, which must be endorsed at the
G20 meeting in Seoul in November, banks will need a minimum
core Tier 1 capital ratio of 7 percent, including a 2.5 percent
capital conservation buffer. This is lower than banks had
feared earlier this year.

“I think that we were pleasantly surprised,” Bank of Nova
Scotia (BNS.TO: ) CFO Luc Vanneste said at the conference,
pointing to a favorable implementation period, which will
stretch to 2019 for some measures.

In the most recent financial quarter, Canada’s banks
reported Tier 1 capital ratios in the 12-14 percent range,
which is much higher than the ratios of their foreign rivals
and well above the 10 percent range they have traditionally
maintained.

The warm reception to the rules in Canada should only raise
expectations that Canadian banks, which are among the best
capitalized in the world, will soon get the green light to
resume dividend hikes, stock buybacks and large acquisitions.

The Office of the Superintendent of Financial Institutions
(OSFI) has unofficially banned such moves until the regulatory
outlook clears up.

Rod Giles, a spokesman for OSFI, told Reuters in an email
that the regulator will soon issue an advisory to the nation’s
big banks providing more clarity on its expectations for future
capital outlays.

Macquarie Equities Research analyst Sumit Malhotra said
Canadian banks’ capital positions were in very good shape to
adopt the new rules, but warned that some banks may not raise
dividends until profit levels rise.

Bank profits are still rebounding from the downturn and
dividend payout ratios for most of the banks are near the high
end of preferred ranges.

“As such, the only banks we foresee raising the quarterly
dividend in the 2010-2011 timeframe are Canadian Western Bank
(CWB.TO: ), Laurentian Bank of Canada (LB.TO: ), National Bank of
Canada (NA.TO: ), and Toronto-Dominion Bank (TD.TO: ),” he said in
a note.

Nancy Hughes-Anthony, head of the umbrella group Canadian
Bankers Association, said the capital requirements and
implementation schedule look reasonable, but warned the outcome
is still a bit uncertain until the finalization at the G20.

“There’s still a number of details to come out on this,”
she said.

“It’s not quite over, is what I would stress.”

Royal Bank was the strongest gainer on Monday, up 2.1
percent at C$54.60 on the Toronto Stock Exchange, while
Scotiabank was up 1.5 percent at C$53.48, and Bank of Montreal
was up 1.5 percent at C$62.05.

($1=$1.03 Canadian)
(Reporting by Cameron French; editing by Rob Wilson)

UPDATE 2-Canada banks say can handle Basel rules; shares up