Tags: Basel | Bank | Plans

French Banks Among Top Winners in Basel Revamp

Tuesday, 27 Jul 2010 09:16 AM

French banks looked to benefit the most from a scale-back of looming capital requirements known as Basel III as investors pushed their shares to 2-1/2 month highs on Tuesday, leading a sector-wide advance.

Credit Agricole shares were up 8.7 percent, among the day's top performers in Europe, with larger rival Societe Generale just behind with a gain of 7 percent.

After 90 minutes of trading, the volume in Credit Agricole and Societe Generale shares already represented around 85 percent of the two stocks' 90-day average daily volumes, compared with 30 percent for France's CAC 40.

BNP Paribas, seen as a safer bet than its smaller peers, rose by 5.8 percent.

The share price jumps came after the Basel committee in charge of deciding on new capital requirements for banks said it would water down proposals such as excluding minority bank stakes from Tier 1 capital and a strict net stable funding ratio to ensure solvency in a crisis.

"As key Basel III 'losers,' the French banks should benefit from these revisions," UBS analyst Omar Fall said in a note to clients, adding that positive sentiment in the wake of Europe-wide stress tests would also help.

The European bank sector as a whole was up more than 3 percent, boosted not just by the Basel scale-back but also by strong results from UBS AG.

French bank stocks have traded at a hefty discount relative to peers over the past six months because of fears the Basel proposals would hamstring them due to their reliance on wholesale funding and other sources of equity such as cross-shareholdings and insurance.

Credit Agricole's structure of cross-shareholdings with regional banks, as well as its relatively high exposure to insurance activities, has especially battered its share price and made it the worst performing French bank so far this year.

"The Basel Committee is being a bit more understanding of other business models such as Credit Agricole's where minority stakes and insurance activities are concerned," a Paris-based analyst said.

French banks have lobbied hard for exceptions to the Basel III proposals, arguing they nearly all emerged unscathed from the crisis and did not cost one euro cent to the French taxpayer after repaying state aid.

They have also said more onerous capital requirements would hamper their ability to finance the economy.

Credit Agricole and SocGen are down 15 percent and 11 percent respectively this year, underperforming a 0.7 percent fall in the STOXX Europe 600 index.

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