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European Banks Continue To Delever, Valuations Below Average  

March 6, 2014
Ann Marie, Value Walk

The Basel III capital framework introduced in 2010 sought to improve transparency and consistency of capital reporting by being stricter in rules regarding which elements to include in capital measures and by introducing the common equity tier 1 ratio. Tier 1 capital is now divided into common equity and additional tier 1 capital.

Citi analysts note that their covered universe of European banks will likely meet Basel III common equity tier 1 ratios by the end of next year. The lowest estimated target is 10%, which is above the 9.5% required by Basel III on 1/1/2018. BNP Paribas SA (EPA:BNP), Commerzbank AG (OTCMKTS:CRZBY), ING Groep NV (NYSE:ING), KBC Bank (EN Brussels: KBC), Natixis SA (EPA:KN), and Societe Generale SA (EPA:GLE) are on the low end of the common equity tier 1 ratio range while Dun & Bradstreet Corp (NYSE:DNB) has the highest estimated target at 13.5%. Overall, if targets are met, European banks will have enough capital to weather environments of economic and financial stress or overheated credit markets.

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