Leverage crackdown puts spotlight on Credit Agricole, Deutsche

Wed Aug 21, 2013 6:26am EDT
 
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By Christian Plumb and Edward Taylor

PARIS/FRANKFURT (Reuters) - A regulatory crackdown on debt could hit Deutsche Bank (DBKGn.DE: Quote) harder than expected and embroil Credit Agricole (CAGR.PA: Quote) despite the French bank's insistence that its ownership structure reinforces its capital defenses.

Global regulators meeting in the Swiss city of Basel in June surprised banks with a new focus on leverage to measure risk, prompting banks holding large amounts of financial derivatives such as Barclays (BARC.L: Quote) and Deutsche Bank to either tap investors for more equity funding or make plans for yet another purge of assets to free up capital.

With euro zone banks still considered too large - their assets are over three times the size of the bloc's economy - others are expected to have to raise capital and shrink with Credit Agricole seen by some analysts as most at risk.

France's third-biggest bank will have to reduce its balance sheet by 242 billion euros, or 14 percent, and generate 17 billion euros in capital over the next three to five years to meet new regulatory requirements, according to a recent study by analysts at Royal Bank of Scotland (RBS).

The analysts estimate that banks in the euro zone will have to cut 3.2 trillion euros in assets over the next three to five years, with the 11 largest, including Credit Agricole, Deutsche, Societe Generale (SOGN.PA: Quote) and Commerzbank (CBKG.DE: Quote), axing 661 billion euros and having to raise 47 billion in capital.

The capital cloud is putting off some investors.

"I have a neutral stance on banks worldwide at this point for several reasons, but I am more underweight the euro zone banks because they have a chronic problem of being undercapitalized, even if there are some exceptions," said Jacques-Pascal Porta, a portfolio manager for OFI Optima International fund.

Credit Agricole has declined to disclose capital or leverage ratios for its listed bank under the proposed new Basel III rules. The regulations call for a leverage ratio of 3 percent, meaning for every dollar of assets and some off-balance-sheet commitments, a bank has to hold at least three cents of equity.   Continued...

 
The headquarters of Deutsche Bank AG is pictured in Frankfurt May 25, 2013. REUTERS/Ralph Orlowski