SOURCE: The Bedford Report

The Bedford Report

October 06, 2010 17:48 ET

Major Banks Respond to Basel III Regulatory Framework

The Bedford Report Provides Analyst Research on Citigroup and UBS

TORONTO--(Marketwire - October 6, 2010) -  Unprecedented challenges caused by the global economic downturn and financial regulatory reform have spurred action among Banks to find ways to adapt and survive. In September major banks found out they will face yet another hurdle as regulatory officials from 27 countries have come up with a new set of capital standards known as Basel III. The Bedford Report examines the outlook for companies in the Money Center Banks Industry and provides research reports on Citigroup, Inc. (NYSE: C) and UBS AG (NYSE: UBS). Access to the full company reports can be found at the following links:

According to the Basel Committee on Banking Supervision, Basel III will set a tougher standard for the quality of capital as well as the assessment of risks on a bank's balance sheet. Banks must now maintain a capital ratio of 4.5% plus an additional 2.5% buffer bringing the total to 7% compared to the previous 2%. The regulations don't take effect until January 2013, and banks will then have until January 2019 to fully meet the newly outlined requirements. Some U.S. banks have already expressed concerns about meeting the new standards if Congress passes additional, stricter regulations.

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Basel III is also likely to affect dividend growth. According to the proposals under Basel III, only if a bank operating in a steady economic environment maintains a Tier 1 capital ratio of 12% would it be allowed to pay or increase common dividends. Already UBS announced it does not expect to pay dividends for some time in order to preserve capital to meet Basel III rules. UBS needed a government bailout during the credit crisis but had built its Tier 1 capital ratio to more than 16 percent in preparation for stricter capital requirements. At the moment, UBS peer Citigroup has a Tier 1 capital ratio of 12%.

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