Basel bank capital deal boosts global bank shares

Sep 13, 2010, 10:51 GMT

Frankfurt - Bank shares climbed Monday after regulators agreed to require the world's leading banks to boost their capital reserves to help shield them from the shock of another financial crisis.

Investors saw the move by Basel Committee on Banking Supervision to raise bank capital requirements as having removed the uncertainty about the introduction of the new rules.

The benchmark Stoxx Europe banking index rose by 1.8 per cent in early trading Monday, propelled forward by solid gains in shares in leading European banks including Britain's Barclays and France's BNP Paribas.

While Australian bank stocks jumped by about 2 per cent, shares in big Japanese financial houses posted similar gains.

This included Mizuho Financial Group, which reported a 1.5-per-cent rise and Sumitomo Mitsui Financial whose shares climbed by 1.9 per cent.

Under the so-called Basel III standards, banks will be required to hold core tier one capital of 4.5 per cent, up from 2 per cent under previous agreements.

In addition, a further 'capital conservation buffer' would be required, bringing the total ratio of capital to assets that banks must hold to 7 per cent.

The core tier one ratio is a crucial measure for the health and shock resistance of a bank. Tier one capital is essentially the most secure form of capital that a bank can hold, meaning that it cannot be withdrawn by any other party.

The Basel III reforms are now to be considered by the leaders of the Group of 20 major economies at their November summit in Seoul.

The implementation of the new standards are to be phased in over a period of years.

However, the new rules are expected to result in banks tapping the markets for fresh capital to help shore up their balance sheets.

Already Germany's biggest bank Deutsche Bank has announced plans to raise at least 9.8 billion euros (12.5 billion dollars) in a rights issue.

In addition from helping Deutsche to meet the new capital and liquidity requirements for banks, the cash call paves the way for the Frankfurt-based bank to launch a takeover of Germany's top retail bank, Postbank.

After sliding in early morning trading, Deutsche Bank shares bounded ahead by 1.6 per cent to 48.48 euros in late morning trading. However, Postbank shares slumped by 6.9 per cent 25.17 euros.

Deutsche plans to lift its present 29.95 per cent stake in Postbank by offering between 24 euros and 25 euros a share in cash to shareholders in the Bonn-based retail lender.