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* Global regulators put new emphasis on leverage in June
* Barclays, Deutsche already announced measures to fill gap
* Deutsche seen likely to have to do more
* Credit Agricole also under the spotlight
By Christian Plumb and Edward Taylor
PARIS/FRANKFURT, Aug 21 (Reuters) - A regulatory crackdownon debt could hit Deutsche Bank harder than expectedand embroil Credit Agricole despite the French bank'sinsistence that its ownership structure reinforces its capitaldefences.
Global regulators meeting in the Swiss city of Basel in Junesurprised banks with a new focus on leverage to measure risk,prompting banks holding large amounts of financial derivativessuch as Barclays and Deutsche Bank to either tapinvestors for more equity funding or make plans for yet anotherpurge of assets to free up capital.
With euro zone banks still considered too large - theirassets are over three times the size of the bloc's economy -others are expected to have to raise capital and shrink withCredit Agricole seen by some analysts as most at risk.
France's third-biggest bank will have to reduce its balancesheet by 242 billion euros, or 14 percent, and generate 17billion euros in capital over the next three to five years tomeet new regulatory requirements, according to a recent study byanalysts at Royal Bank of Scotland (RBS).
The analysts estimate that banks in the euro zone will haveto cut 3.2 trillion euros in assets over the next three to fiveyears, with the 11 largest, including Credit Agricole, Deutsche,Societe Generale and Commerzbank, axing 661billion euros and having to raise 47 billion in capital.
The capital cloud is putting off some investors.
"I have a neutral stance on banks worldwide at this pointfor several reasons, but I am more underweight the euro zonebanks because they have a chronic problem of beingundercapitalized, even if there are some exceptions," saidJacques-Pascal Porta, a portfolio manager for OFI OptimaInternational fund.
Credit Agricole has declined to disclose capital or leverageratios for its listed bank under the proposed new Basel IIIrules. The regulations call for a leverage ratio of 3 percent,meaning for every dollar of assets and some off-balance-sheetcommitments, a bank has to hold at least three cents of equity.
Credit Agricole has said regulators and rating agencies arefocused only on the capital of the broader Credit Agricolegroup, which is bolstered by its wealthy regional savings banks.
At a group level, Credit Agricole says it has a 3.5 percentleverage ratio using existing European requirements, which areless strict than the proposed new rules. On a standalone basis,the listed bank's leverage ratio is 1.6 percent, the lowestamong large euro zone banks, according to RBS research.
Credit Agricole said RBS's estimate reflected transactionsbetween its regional savings banks and the listed bank.
"So the only good way of looking at things is to calculate aleverage ratio at the group level," said a spokeswoman.
Key to Credit Agricole's confidence is a guarantee, or"switch mechanism", from the parent company set to bestrengthened early next year, but details of which remain sparsepending an "Investors' Day" in November or December.
Fitch ratings agency said Credit Agricole's group structurewas a key support - if the listed arm needed more capital, itcould raise it internally without resorting to the market aslong as the wider group had enough capital of its own.
Not everyone is convinced the "switch" is iron-clad.
"A guarantee is never the same as having the capital at handfor emergencies," said KBW analyst Jean-Pierre Lambert. "There'sstill a risk of a capital increase," Lambert said. "There willbe a component of switch, yes, but they could balance this bydoing some form of capital increase."
Issuing debt or equity or curbing dividends would cap arecent rally in Credit Agricole stock. It has gained 35 percentin 2013, nearly triple the European sector, as confidence growsover its exit from Greece and a refocus on its home market.
EARNINGS
Until recently, regulators focused mainly on getting banksto hold more capital and liquidity so they can better absorblosses in future financial crises. But concern that banks mightbe underestimating the riskiness of their lending promptedregulators to lean more heavily on the leverage ratio, whichdoes not rely on banks' in-house risk models.
The Basel III proposals on leverage, which measure a bank'scapital against all its assets, including loans and derivatives,require the ratio to be based on gross derivatives rather thanlower net figures, hitting banks such as Deutsche and Barclays.
Shrinking bank balance sheets by trillions of euros islikely to cut lending and weigh on the fragile European economy.
Given the large banks on their patch and the severity oftheir banking crises, the British, along with the Swiss and theUnited States, are taking a tougher line on leverage beyond theBasel III rules. For a factbox
Heeding a warning from the Bank of England not to damage thedomestic economy in trying to meet the leverage target, Barclaysopted for a 5.8-billion-pound rights issue and issued 2 billionpounds in debt to meet a June 2014 deadline for a 3 percentleverage ratio, up from 2.2 percent now.
Barclays stock has dropped nearly 12 percent since rumoursof a rights issue first surfaced late last month, but thecapital hike has pleased some investors.
"We're taking another look at Barclays because they'vefinally managed to put their house in order - they are now a bitless bothered by undercapitalisation," said Porta.
Having already tapped investors for 3 billion euros in arights issue in April, Deutsche Bank is planning to shrink itsbalance sheet, one of Europe's biggest, by some 250 billioneuros by 2015, to meet the new Basel III leverage rules.
A study by JP Morgan analysts argued that Deutsche Bankneeded to axe 500 billion euros rather than 250 billion euros.
Deutsche has already said that shrinking its balance sheetas planned could cost it approximately 600 million euros inone-off costs and roughly 300 million euros in future pretaxprofit.
Any further cuts could see its profits further crimped.
A spokesman for Deutsche Bank declined to comment on the JPMorgan estimate, and referred to recent comments by ChiefFinancial Officer Stefan Krause, who said the bank meets allcurrent regulatory demands and has sufficient flexibility tomeet more severe requirements if necessary.
Deutsche's balance sheet has already contracted by 15percent to 1.91 trillion euros in less than a year, puttingpressure on its flagship fixed-income business, whichunderperformed in the second quarter.
"Deutsche meets the rules on leverage and capital, whereGerman regulators have taken a less aggressive approach thantheir UK, U.S. and Swiss counterparts. That said, the bank facespressure from investors to comply with the rules in alljurisdictions," said Chris Wheeler, analyst at Mediobanca.
"The big worry is what additional cutbacks on balance sheetsize will mean for earnings."
