CIBC, Scotiabank May Add Capital Under Proposals, Genuity Says

http://www.fxfxfx.com 2010-02-02 16:34:59

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Bank of Nova Scotia and Canadian Imperial Bank of Commerce may need to raise money or cut dividends to meet proposed global rules for minimum capital, according to a study by Genuity Capital Markets analyst Mario Mendonca.

The Basel Committee on Banking Supervision said in December that banks must increase the amount of equity and retained earnings they hold by the end of 2012 to better cope with losses. In a note to investors today, Mendonca said Canadian banks may establish a “de facto” minimum of 9 percent Tier 1 capital ratio as a result.

If Scotiabank and CIBC -- Canada’s third- and fifth-largest banks by assets -- “do nothing” with capital levels in the next three years, the Toronto-based lenders’ Tier 1 ratios might slip below 9 percent by 2012, Mendonca said.

“In theory, under the Basel proposals CM and BNS would be required to raise capital, cut dividends and/or cut incentive compensation,” the analyst wrote, using the ticker symbols for the two companies.

According to Mendonca’s hypothesis, Scotiabank would leave its 49-cent-a-share quarterly dividend unchanged through 2013, while CIBC would raise its 87-cent-a-share payout in 2013.

Royal Bank of Canada, Toronto-Dominion Bank and National Bank of Canada “screen well” under the Basel scenario, Mendonca said. Royal Bank, the country’s largest bank by assets, and No. 6 National Bank “can continue to grow dividends” through 2013, the analyst wrote.

Scotiabank and CIBC have said Canadian banks are well- positioned to deal with future capital requirements.

“If the rules are implemented as is, clearly management is going to take action,” Scotiabank Chief Operating Officer Sarabjit Marwah told investors at a conference sponsored by RBC Capital Markets last month.

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Keywords：Bank capital Mendonca banks