Tougher Europe bank capital rules could see dash for cash
LONDON (Reuters) - Shares in Europe's banks dipped Monday after regulators slapped an extra capital surcharge on big lenders to make them safer, and told them they could not use contingent capital for the extra cushion.
The surcharge of between 1 percent and 2.5 percent for the biggest banks was in line with expectations after months of wrangling. But the exclusion of contingent capital (CoCos) to reach the higher target will be a disappointment to many banks and investors, analysts said.
Not allowing CoCos will be an unwelcome surprise for those managers and investors who had seen CoCos as the solution to recapitalizing the sector, said Antonio Guglielmi, analyst at Mediobanca.
"The buffer should trigger a final wave of rights issues," Guglielmi said in a note Monday, estimating there is a 62 billion capital shortfall shared between BNP Paribas <BNPP.PA>, Societe Generale <SOGN.PA>, Credit Agricole <CAGR.PA>, Santander <SAN.MC>, Credit Suisse <CSGN.VX>, Deutsche Bank <DBKGn.DE> and UniCredit <CRDI.MI>.
By 0715 GMT shares in Credit Suisse, UniCredit, BNP Paribas, SocGen and Deutsche Bank were all down about 0.7 percent, compared with a 0.3 percent dip in the European bank index <.SX7P>.
The surcharge will add to a 7 percent minimum capital standard and is part of a series of regulatory reforms launched in response to the financial crisis to make the system safer and prevent the need for taxpayer bailouts in the future.
About 30 banks are expected to be subjected to the surcharge. HSBC <HSBA.L>, JP Morgan <JPM.N> and Deutsche Bank are among about eight banks likely to be in the top bracket needing to hold 9.5 percent core Tier 1 capital.
Regulators are due to decide the specific capital levels for banks next month. The surcharge will be based on five elements -- size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity, and complexity.
Many of the world's biggest banks already hold core Tier 1 capital ratios of 10 percent or more and therefore meet or exceed the top end of the surcharge band.
(Reporting by Steve Slater; Editing by Will Waterman)