Bloomberg News

HSBC, Citigroup May Face Top Basel Surcharge, Analyst Says

June 20, 2011

(Adds categories in third paragraph.)

June 20 (Bloomberg) -- HSBC Holdings Plc, Citigroup Inc., Deutsche Bank AG and BNP Paribas SA may face the highest additional capital requirements under plans by the Basel Committee on Banking Supervision, Morgan Stanley analysts said.

Other lenders that may be subject to the surcharge of about 2.5 percent include Bank of America Corp., JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Group Plc, London-based analysts led by Huw Van Steenis said in a report to clients today. UBS AG, Credit Suisse Group AG, Goldman Sachs Group Inc. and Societe Generale SA would be subject to a lesser charge of 2 percent, according to the report.

The Basel committee has said all banks should hold core Tier 1 Capital of 7 percent, and is considering additional requirements for those banks it considers systemically important financial institutions, those firms whose collapse would harm the global economy. Banks may be divided into five groups with surcharges ranging from 1 percent to 3 percent, the analysts said. The top 3 percent category may remain empty at first, in part to deter lenders from acquisitions, the analysts said.

“Many of the top 25 banks could approach likely standards in the next three to four years, but at the cost of dividends, returns or, critically, through more aggressive deleveraging,” the analysts said. “The latter is the key risk we see to economic recovery and our return-on-equity expectations.”

Lloyds Banking Group

National regulators may impose additional requirements that surpass the Basel surcharges, the Morgan Stanley analysts said. British and Nordic regulators may follow the Swiss in requiring 10 percent core Tier 1 ratios because banks have more assets relative to the size of their economies as well as a greater share of the market, the analysts said. That may mean Lloyds Banking Group Plc, which isn’t likely to be one of the 25 banks subject to the Basel surcharge, will still need to hold as much as 10 percent capital, the analysts said.

UniCredit SpA, Societe Generale, Deutsche Bank, Mizuho Financial Group, Inc., Dexia SA and Sumitomo Mitsui Financial Group, Inc. may not meet the new rules by 2013, the Morgan Stanley analysts said.

The Financial Stability Board, which brings together finance ministry officials, regulators and central bankers from the Group of 20 countries, asked the Basel committee last year with drafting the extra requirements for too-big-to-fail banks. Mario Draghi, the FSB’s chairman, said in April that work on the rules would be completed in time for approval by G-20 leaders in November.

--With assistance from Jim Brunsden in Brussels. Editors: Edward Evans, Francis Harris.

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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