WRAPUP 4-Basel eases capital fears, top banks still in spotlight

* Banks rally as Basel III not as harsh as feared

* Most important banks may face capital surcharge

* Banks could need hundreds of billions of capital-Wellink

* Clarity could help strong banks on dividends, M&A

* Trichet says rules will support lending, economic recovery

(Adds comments by FSB, ECB chiefs, updates shares)

By Sakari Suoninen and Gilbert Kreijger

BASEL, Switzerland/AMSTERDAM, Sept 13 (BestGrowthStock) – New
capital rules set by global regulators brought relief to the
world’s banks on Monday, giving weaker lenders time to raise
funds and freeing the strong to lift dividends or hit the
acquisition trail.

But the biggest international banks still face a capital
surcharge on top of Basel III rules announced late on Sunday, to
tackle concerns that banks deemed “too big to fail” may take
risks that could derail the entire financial system.

“The (Basel) agreements certainly reduced probability of
failure for systemically important banks but it doesn’t resolve
the moral hazard problem as these banks are too big or too
interconnected to fail,” said Mario Draghi, Governor of the Bank
of Italy and head of the Financial Stability Board (FSB).

The FSB, a separate body from the Basel group, will put
forward its proposals to a summit of G20 leaders in November.

Investors welcomed the long phase-in of new capital
standards under Basel III, shrugging off comments from one of
the architects that the sector would eventually have to raise
hundreds of billions of euros.

Europe’s banks jumped two percent to a one-month high and
the euro (EUR=: ) rose 1 percent versus the dollar.

“Authorities have agreed and realised they need to let the
banks recover first and start to lend to participate in the
recovery,” said Guy de Blonay, who co-runs fund manager
Jupiter’s 1.4 billion pound Financial Opportunities Fund.

The new Basel III requirements will demand banks hold
top-quality capital totalling 7 percent of their risk-bearing
assets, more than triple what they do now, but a long lead-in
time eased fears of a rush to raise capital.

Europe is the most likely region for banks to need to raise
funds, notable in Germany and Spain.

“It will be hundreds of billions (of euros),” European
Central Bank Governing Council member and head of the Basel
Committee on Banking Supervision Nout Wellink said of the
capital-raising needs.

“Partly they will have to retain profit for years which they
cannot use to pay shareholders or bonuses. For another part,
this will vary from bank to bank, they will have to get it from
the capital market,” Wellink, who heads the Dutch central bank,
told Dutch NOS Radio 1 Journaal.

The new capital ratio represents a substantial increase from
the current requirement of 2 percent, but is significantly lower
than what banks had feared earlier this year and comes with a
phase-in period extending in part to January 2019.

European Central Bank President Jean-Claude Trichet said
regulators had struck a good balance between strengthening
capital while allowing lenders to lend, but said it remained “a
work in progress”. [ID:nSLADKE6CH]

He said the more stringent capital requirements for banks
would not hamper global economic recovery.

Top German lender Deutsche Bank (DBKGn.DE: ) is seeking a
headstart on rivals such as Commerzbank (CBKG.DE: ) by announcing
plans to raise almost 10 billion euros to bolster its capital.
It said it would meet the Basel III rules by the end of 2013.
[ID:nLDE6891GL]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on the phase in of rules, click on: http://r.reuters.com/jam23p For a snap analysis on Basel III, click on [ID:nLDE68B0JE] For a snap analysis on implementation, click on [ID:nLDE6891KJ] For a Reuters Breakingviews column, click on [ID:nGEE5B80VJ] For a full package Basel III stories, click [ID:nLDE68B0DC] For a graphic on European banks ROE and tier 1 ratio: http://graphics.thomsonreuters.com/F/08/EZ_T1ROE0810.gif ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

TIME ON THEIR SIDE

Banks will not be required to meet the minimum core tier one
capital requirement, which consists of shares and retained
earnings worth at least 4.5 percent of assets, until 2015.

An additional 2.5 percent “capital conservation buffer” will
not need to be in place until 2019.

When regulators issued an initial consultation document last
year the new rules were expected to come into force by the end
of 2012, but banks urged delay, citing worries that a speedy
introduction would hit a fragile economic recovery.

Most banks in Asia, outside Japan, have capital levels well
above the minimum levels under Basel III. Shares in Japanese
banks, which have slightly lower levels, also rose.

“It’s no big bang for banks, not with a phase-in arrangement
of five years,” said Commonwealth Securities analyst Craig
James.

Banks that will benefit from the longer transition period
were among the top gainers in Europe, with France’s Credit
Agricole (CAGR.PA: ) up 6 percent and Italy’s Banco Popolare
(BAPO.MI: ) up 4.5 percent.

Many top banks in the United States and Canada, the Nordic
and Benelux regions, Britain and Switzerland have a more
comfortable capital cushion and clarity on Basel rules could see
them become bolder in reinstating or raising dividends or
seeking acquisitions, investors and analysts said.

“It will allow them to be a bit more flexible on growth
opportunities,” Jupiter’s de Blonay said.

Credit Suisse analysts saw 7 percent as the bare minimum for
core Tier 1 capital, 8 percent as the standard for adequately
capitalised banks and 10 percent as the level at which surplus
capital could potentially be returned to investors.

SURCHARGES?

Swiss and British banks will be among those facing extra
measures imposed on systemically important banks. That could
include “combinations of capital surcharges, contingent capital
and bail-in debt”, Sunday’s statement said.

There will also be an additional counter-cyclical capital
buffer of up to 2.5 percent, which national regulators will
apply during periods of excess credit growth.

The Basel III agreement was reached in Switzerland by
central bank governors and top supervisors from 27 countries,
after a year of horse-trading and lobbying that involved banks
and governments seeking to protect their national interests.

Leaders of the Group of 20 rich and big emerging economies
blamed the global credit crisis partly on risky trading by banks
and demanded tougher bank capital rules.

They are set to endorse Sunday’s deal when they meet in
Seoul in November and consider the FSB’s recommendations for
systemically important banks.

So far there is no consensus at the G20 to back a mandatory
surcharge on top of the Basel III requirements.

“These institutions need greater loss absorbing capacity,”
Draghi said.
(Additional reporting by Rachel Armstrong, Lionel Laurent, Ian
Simpson, Narayanan Somasundaram, Denny Thomas, Ben Lim, Aileen
Wang and Taiga Uranaka; Editing by Mike Peacock)

WRAPUP 4-Basel eases capital fears, top banks still in spotlight