Pressure from the markets could not relax

Coup de Trafalgar In early October, the British decided to recapitalize their banks of 25 billion pounds, under their ratio of own funds, the financial strength indicator, from 9 to 10.3. At the time, they put all the banks of the continent under pressure from the markets. Hope to compete at this level, continental banks, Tier-1 ratios are funded 8.3, should throw in the 130 billion euros.

Even the Spanish Santander, yet large recipient of the crisis, has had to launch a surprise 7.2 billion euros capital increase, and BNP Paribas, with the acquisition of Fortis, despite his reassuring statements, is attacked on the stock exchange. "It becomes irresistible to BNP Paribas. It is the market who wants to, regardless of compliance with the regulatory safeguards, recently considered an analyst. It must increase its "core" Tier-1 from 5.9 to 7.

French banks reject as a whole any constraint auction on levels of tier one. "No, the English plan does not set a threshold to the French settlements, says Didier Valet, financial Director of the Société Générale Group. It is as if there were two races in parallel: we run on a flat track while the British left on a mountain trail. On hand not the same levels of tier one ratios and the cost of the risk of French banks remains lower, regardless of the phase of the cycle, the English cost. Hence a lower facial ratio. Moreover, the British regulator incorporates necessary additional risk margin in the prospect of an increase in defects of credit and the deterioration of the credit to SMEs. In France, the situation of individuals and companies is healthy. "A sensitive issue to the point that several banks are working on the comparison of tier one and States support plans.

Different methods

In fact, that is the reference to the ratio of Tier-1 as an indicator of financial strength, when Dexia, with the highest of the French square, more than 11, was the first to fail, and that the Bank of the street of Antin, good last of establishments in the Hexagon, has until then rather well out of the financial crisis

The dice are loaded in part, due to different national practices. Basel II, for example, the new standard of own funds of banks, European risk weighting applied differently depending on the country. "The la majorité majority of banks, explained Bernard de Longevialle and Elie Hériard-Dubreuil of Standard & Poor's, reach an economy linked to the transition to the new standard of 10 in 2008. But, in Britain, ratios are published without effect floor, so the economy appears to be significantly higher. "BNP Paribas as Credit Agricole are forced to display a"core"Tier-1, the ratio of own funds hard, reduced from 0.2 to 0.3 because of limits imposed by the regulator to pass on the benefits of the transition to the new Basel II standard. British banks, they can pass this year all of this benefit.

Then, all banks do not use the same mechanisms weighting of risk capital. A bank that chooses the standard, the simplest method must balance his mortgage up to 35, as is the case for the Caisses d'Epargne, against often much less advanced method, recall Bernard de Longevialle and Elie Hériard-Dubreuil. In the Nordic countries, for example, Nordea balances these risks to 35 at the end, but only 6 Swedbank. Some combine approaches. BNP Paribas posts 50 of its own funds in standard method needs this year, because of its American subsidiary, its positions in emerging markets and the UCB.

"There is deception"

Same difference in treatment for the preferred shares subscribed for example by the British State to support its banks. British, Belgian or Dutch institutions can be included in the basis of own funds, or even their "core" Tier-1, which is not the case elsewhere.

Other differences exist as to dividends. Unlike England, the French banks should deduct from own funds from year to year. "Or, if we provisionnions 80, we could improve our ratios still 0.2 or 0.3", said a banker.

Same again for the proportion of hybrid capital accepted in the calculation of Tier-1 instruments headlights developed by banks in recent years. Where the British accept up to 50, the French are limited to 25. "Some countries account them even in the calculation of own funds hard the" core"Tier-1." "Fortis and KBC can integrate a substantial part of the hybrid securities entered into by the Government in their"core"Tier-1," explained Bernard de Longevialle and Elie Hériard-Dubreuil. Of the many differences exist such as the integration in the capital of the coupons paid by the State. The British have the faculty, as with investments in subsidiaries of insurance.

An illusory reference

In all these differences, refer to the Tier-1 ratio as the main indicator of financial strength appears quite illusory, even if it is too high, be indicative of weaknesses. Dexia has benefited from the opportunity in Belgium and the Netherlands to incorporate the positions of its bond portfolio capital. It is these same exhibits which led to its collapse. "On an economic basis, before the recapitalisation plans, including British, there was intrinsic creditworthiness adjusted risk degradation", said Standard & Poor's. Should new ratios displayed by British banks thus become the rule "The market has launched a movement very strong pressure on the banks." But set a target of Tier-1 identical for all would be to ignore major differences in the calculation of the ratio and individual situations. "However, if the French banks were better capitalized that British banks before the capitalization plan,"today, they are correctly, without more. " Pressure from the markets could not relax.