BNP's capital ratio slips to 10 pct "borderline" after record fine

LONDON, July 1 Tue Jul 1, 2014 9:41am EDT

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LONDON, July 1 (Reuters) - BNP Paribas said a record $9 billion fine slapped on it for avoiding U.S. sanctions would not force it to rush out and raise cash or sell assets, even though it will wipe out the French bank's capital advantage over weaker rivals.

The fine will leave BNP with a core capital ratio of 10 percent - above minimum regulatory levels but the floor that investors now expect big banks to hold, and below the 11 percent average that Europe's bigger banks now hold.

It undermines progress made by BNP in building its capital up over the last three years and could leave it under pressure to raise equity if a review of assets by European regulators throws up any nasty surprises, or if any more bills land at its door from a rising tide of legal charges and fines.

In a show of confidence, BNP rejected the option to cut its dividend. It said it planned to keep its 2014 payout unchanged at 1.5 euros per share in cash, which costs 1.9 billion euros.

BNP's record penalty for breaking U.S. sanctions on trading with Sudan, Iran and Cuba has been hanging over the bank for months, and analysts said it was encouraging that the bank's capital at the end of this year should still scrape above its target of 10 percent.

"It leaves them in a position where they (should be) above their target - not as strong as they'd like to be, but they're not far off given the enormous trauma they've had to go through," said Chris Wheeler, analyst at Mediobanca.

BNP's core capital was 10.6 percent at the end of March, after the bank worked hard to bolster capital since the summer of 2011, mainly by closing businesses and reducing its reliance on short-term funding, especially in U.S. dollars.

But rivals have also been building capital, and most European banks have an average core capital ratio of 11.1 percent under full Basel III rules, according to analysts at Credit Suisse. Nordic lenders Handelsbanken and Swedbank have ratios of near 18 percent, while weaker rivals in Italy, Portugal and Spain are below 10 percent.

Deutsche Bank and Barclays have both raised billions of euros from rights issues in the past year as their capital and leverage ratios came under intense scrutiny.

BNP Paribas could sell Additional Tier 1 debt - or bonds that convert into equity if the bank hits trouble.

"At this stage we're in no rush in respect to Tier 1. That doesn't mean we might not do something opportunistically, but there is no rush for Tier 1," BNP finance director Lars Machenil told analysts on a call on Tuesday.

Asked if the bank could sell assets, such as its stake in shopping centre Klepierre worth more than 1.5 billion euros, Machenil said that was a "micro management question" and there were no specific plans for any sales.

There are risks to its capital rebuild plan, however. Income for all investment banks remains weak, which could limit earnings generation. BNP also still needs to pay Polish bank BGZ, which it has agreed to buy for $1.4 billion, and it faces a regulatory "valuation adjustment" next year, which together may knock 50 basis points off its capital, analysts said. (Additional reporting by Maya Nikolaeva in Paris; Editing by Sophie Walker)

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