European shares dip, banks surge on Basel news

Mon Jan 7, 2013 4:53am EST

* FTSEurofirst 300 down 0.1 pct, Euro STOXX 50 down 0.2 pct

* Softened Basel III liquidity requirement boosts banks

* Peugeot up as stake sale report prompts short covering

By Blaise Robinson

PARIS, Jan 7 (Reuters) - European shares dipped on Monday, taking a breather from their new year rally, although losses were limited by gains in banking shares propelled by regulators' decision to ease new liquidity rules for the sector.

At 0924 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,165.77, while the UK's FTSE 100 index was down 0.3 percent, Germany's DAX index down 0.4 percent, and France's CAC 40 down 0.4 percent.

The euro zone's blue chip Euro STOXX 50 index was down 0.2 percent at 2,705.22 points.

On Sunday, the Basel Committee of banking supervisors said they will give banks four additional years and more flexibility to build up cash buffers, allowing lenders to put some of their reserves to work, which should boost economic growth.

UniCredit surged 4.2 percent, Societe Generale added 2.5 percent, BNP Paribas gained 2.1 percent, and Barclays rose 3.5 percent.

"Softening Basel requirements is good news for banks, bringing a bit of breathing space which will help the sector continue its recovery," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.

"Overall, the market's positive trend is still intact, even though the Euro STOXX 50 has already reached a major target around 2,720 points. The market is ripe for a pause, but with so much cash on the sidelines, there are a lot of buyers showing up each time we have a dip."

The STOXX euro zone bank index was up 2.1 percent on Monday. The sector index has jumped 67 percent since late July, when fears of a break-up of the euro zone started to abate following comments from European Central Bank President Mario Draghi about the ECB's determination to do "whatever it takes" to save the currency bloc.

The Euro STOXX 50 has gained 26 percent since then, outperforming a 10 percent rise for Wall Street's S&P 500 over the same period.

JP Morgan Cazenove strategists see Europe's outperformance continuing this year, saying that the region's equities are attractively valued while the United States faces concerns over its fiscal situation.

"We still find widespread scepticism towards the region, the bar is set very low for the potential growth surprise," the strategists wrote in a note.

Peugeot was among the top gainers in Europe on Monday morning, up 9 percent as market speculation that the struggling French carmaker will sell its stake in car parts maker Faurecia fuelled hopes the company could raise as much as 1.5 billion euros, prompting a wave of short covering.

Peugeot is among the most shorted stocks in Europe, with 18 percent of the company's shares out on loan, according to data from Markit. Hedge funds with negative bets on the struggling carmaker are feeling the heat from the stock's 50 percent jump over the past month, forcing some of them to cover their position by buying back the shares.

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Comments (2)
mountainrose wrote:
Banks won watered down rules when then Clinton’s sec of treasury, former Goldman Sachs board member and CITI CEO , Rubin, convinced congress to repeal the Glass Stegall bank act passed following the great depression precisely to avoid allowing banks from engaging in highly leveraged speculative activities that led to the 08 crash. Good to see they learned their lesson

Jan 07, 2013 6:00am EST  --  Report as abuse
GeorgeLekatis wrote:
1. The LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January 2019. This graduated approach is designed to ensure that the LCR can be introduced without disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.

2. During periods of stress it would be entirely appropriate for banks to use their stock of high quality liquid assets (HQLA), thereby falling below the minimum

3. Banks will be able to count a much wider variety of liquid assets towards their buffers, including some equities and high-quality mortgage-backed securities.

4. European and American banking stocks surged because they will incur much reduced costs due to the implementation of the relaxed rules.

5. Banks in many other counties will have no benefit, as supervisors have already asked for strict liquidity rules, and they are not willing to take it back.

6. On the negative side, the main objective of Basel iii is to restore investor confidence. The Basel Committee has developed the new framework as a response to the crisis, and has explained (time and time again, every month since November 2010) the need for these strict rules.

Although it is true that Basel iii is an overreaction to the market crisis, it is way too late now to “ease” the rules and make investors happy the same time. This is simply a red flag for investors, leading to the conclusion that banks could not really comply. I have several telephone calls and shareholders ask the same question: What is wrong with the banks?

I agree with the Liquidity Coverage ratio (LCR) Basel iii amendment, but I cannot agree with the way it was presented.

George Lekatis
Basel iii Compliance Professionals Association (BiiiCPA)

Jan 07, 2013 6:29pm EST  --  Report as abuse
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