UPDATE 3-European banks confident on Basel III

* Barclays, BNP, SocGen to meet Basel with retained earnings

* Uncertainty on systemic risk surcharge, funding costs-CEOs

* SocGen’s Oudea says Q3 conditions better than Q2

* Buba sees German banks needing 90 bln eur capital-sources

(Adds German sources on Bundesbank study of capital needs)

By Lionel Laurent and Steve Slater

PARIS, Sept 29 (Reuters) - The heads of top British and French banks Barclays BARC.L, BNP Paribas BNPP.PA and Societe Generale SOGN.PA said they could meet tighter capital rules without a rights issue by using their own profits.

But they said there is still uncertainty over the exact burden Basel III rules will place on big banks if a systemic risk charge is imposed on them and over the impact of tighter capital requirements on funding costs.

The main requirement of Basel rules set to come into force by 2019 is a Tier 1 capital ratio of 7 percent. [ID:nLDE66Q17Z]

Many banks’ Tier 1 ratios are already above this but the Basel III regime is much stricter on what can be counted as Tier 1 capital, prompting fears of more rights issues in the sector.

“BNP is in a position to be above that 7 percent threshold...without ever raising any capital,” BNP Chief Executive Baudouin Prot told a Merrill Lynch-Bank of America investment conference in London.

Societe Generale CEO Frederic Oudea and incoming Barclays CEO Bob Diamond earlier told the conference their banks would also be Basel-compliant thanks to retained earnings, although Oudea did not explicitly rule out a rights issue.

Shares of SocGen were down 3.4 percent, the worst performers on a 0.74 percent weaker French blue-chip CAC 40 index .FCHI.

Several traders cited rumours on Tuesday that SocGen was preparing a capital increase. The bank did not comment, while two analysts dismissed the idea as unlikely. [ID:nLDE68R1VX]

Credit Suisse CSGN.VX CEO Brady Dougan said the Swiss bank will be able to stick to its growth and dividend plans despite stricter global and domestic capital rules. [ID:nLDE68S0LC]


Despite confidence on meeting Basel requirements, quantifying the exact impact of Basel III is difficult because global regulators are still discussing extra proposals such as a systemic risk capital surcharge for large banks.

A Bundesbank study showed that German banks taken together would need around 90 billion euros ($122.5 billion) in extra capital to meet the Basel targets by 2019, whether through retained earnings or capital raising, several sources familiar with the study told Reuters on Tuesday.

The country’s top 10 banks alone would need about 50 billion, the sources said.

Barclays’ Diamond said the new regime could add 150 billion pounds ($237.1 billion) to the bank’s risk-weighted assets, with 60 billion to assess market risk.

The broader effects of Basel include rising funding costs as banks focus on generating returns on retained capital, argued Diamond. SocGen’s Oudea said Europe would likely move gradually towards a more American model with lower levels of bank lending and more capital markets borrowing.

BNP’s Prot cast doubt over the American economy as well, however, by saying that future revenue and loan-loss provision trends in U.S. retail banking were “not 100 percent clear”.

But he said that subsidiary BancWest was a core asset and that the bank would continue to manage it, responding to a question on whether the unit might be sold.

When asked how the third quarter had shaped up after a tricky second quarter, SocGen’s Oudea said: “As you all know it is still a relatively low-volume-growth environment...(But Q3 has) better trading conditions than in Q2.”

A slump in capital markets activity in the second quarter driven by sovereign euro debt fears hurt investment banking profits at many European lenders including larger rival BNP Paribas BNPP.PA.

Investors have also been wary of investment banking activities after Germany's Deutsche Bank DBKGn.DE said trading had been weak over the summer months. [ID:nLDE68K1QT]

Deutsche this month raised more than 10 billion euros in a capital hike, preparing itself and its future unit Deutsche Postbank DPBGn.DE for the Basel III environment. (Additional reporting by Julien Ponthus in Paris and by Philipp Halstrick, Andreas Framke and Jonathan Gould in Frankfurt; Editing by James Regan and Michael Shields)