British, French and Nordic lenders may be among the biggest winners of the decision by central bank chiefs to relax liquidity rules, according to analysts.
The plan will allow U.K. and Nordic banks that have built up so-called high quality liquid assets to sell and replace them with higher-yielding securities, Andrew Lim, an analyst at Espirito Santo Investment Bank, wrote in a note to clients today. Barclays Plc (BARC), Britain’s second-biggest lender, may save about 300 million pounds ($482 million) in interest costs, increasing pretax profit by 4 percent, Lim wrote.
Some “banks will be in a position to reduce liquid asset buffers and increase their stock of higher yielding, relatively more illiquid assets, or else simply reduce their expensive wholesale funding,” London-based Lim wrote. “U.K. banks are the main banks that will be in a position to do this.”
Regulators agreed yesterday to water down and delay implementation of the liquidity coverage ratio, which forces banks to hold enough liquid assets in reserve to survive another financial crisis. Lenders will be allowed to use an expanded range of assets including some equities and securitized-mortgage debt following the deal in Basel, Switzerland. Banks also have an extra four years to fully comply with the measure.
Societe Generale SA (GLE) and BNP Paribas SA (BNP), France’s two largest lenders, are among the wholesale banks with the lowest liquidity ratios that will find it easier to meet the new plans, according to Lim and Kinner Lakhani, an analyst at Citigroup Inc. in London.
Under the revised rules, banks will be required to hold a third as much high quality liquid assets to support corporate credit compared with the original plans, cutting costs for lenders with a large corporate client base.
“We expect wholesale banks, notably the major French banks, to be notable beneficiaries,” Lakhani wrote in a note to clients. These changes “go beyond our expectations and should be supportive for the banking sector.”
Barclays rose 3.5 percent to 286.5 pence at 4:12 p.m. in London trading. Societe Generale rose 2.4 percent to 30.03 euros. BNP Paribas jumped 1.9 percent to 45.21 euros. The 38- member Bloomberg Europe Banks and Financial Services Index climbed 1.3 percent.
Lakhani also identified Barclays as a bank that will benefit from the rule changes. Deutsche Bank AG analyst Matt Spick cited Barclays, Societe Generale, BNP Paribas and Swedish lender SEB AB as potential beneficiaries.
The liquidity changes are “a material improvement in the regulatory environment that European banks face,” Spick wrote in a note. “Corporate-heavy universal banks will be the biggest beneficiaries.”
The U.K.’s five-biggest banks had 13 percent more high quality liquid assets than required under the previous rules, according to the Bank of England. That figure will increase under the revised regulations, Royal Bank of Scotland Group Plc analysts led by Jorge Mayo wrote in a note to clients.
It will be “positive” for profits “as the absolute amount of lower yielding liquid assets to be held by a bank will be smaller and, at least partially, the liquidity buffer would be derived from higher-yielding assets,” Mayo wrote. “U.K. banks in this regard look particularly well positioned.”
Banks aren’t required to disclose their liquidity ratios under European rules.
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