Europe banks may feel profits squeeze after US raises capital bar

LONDON, Dec 17 (Reuters) - European regulators could raisethe bar on capital for banks like Deutsche Bank andBNP Paribas in response to tough U.S. proposals tomake banks less risky, potentially depressing profitability,Barclays analysts said.

The U.S. Federal Reserve has proposed that eight big U.S.banks should hold an extra capital cushion, which could requiremany to hold core capital of 12 percent of risk-weighted assets,significantly above the global minimum.

In Europe, regulators in Nordic countries, Switzerland andBritain have already set higher capital requirements than theglobal standard, but the bar is lower in most euro zonecountries.

"The U.S. move to higher requirements ... begs the questionwhether Eurozone requirements also now move higher," JeremySigee, analyst at Barclays, said.

Barclays analysts said Deutsche Bank, BNP Paribas andSociete Generale would be most affected, and couldneed 15-20 percent more capital if they had to move to a 12percent minimum standard.

That would depress their return on tangible equity, ameasure of profitability, by between 1.6 and 1.9 percentagepoints each, Sigee said in a note on Wednesday.

Deutsche Bank's return on equity was less that 3 percent inthe first nine months of the year, below the 12 percent it aimsfor in 2016 and a long way from its pre-crisis 20 percent.

It could also force banks to restrain dividends. Some,particularly French banks, could revise business plans and scaleback activities, he said.

The changes would have little impact on Europe's other majorbanks, UBS, Credit Suisse and HSBC,as they are already planning for higher capital standards. Sigee said for them the U.S. move could mark a welcome levellingof the playing field.

The analysts do not cover Barclays Plc.

But Sigee and other analysts said it was too early topredict how the U.S. rules will play out.

Omar Fall, analyst at Jefferies, said most banks werealready working towards higher capital levels than the minimum,with market pressure on banks to hold core capital of 11-12percent.

The Fed wants U.S. banks whose failure could threatenmarkets to fund themselves more through shareholder equity andless by borrowing. Its proposals would take effect in 2016.

JPMorgan could need $20 billion of extra capital. Itsaid it will not keep as much excess capital over requiredlevels as it might have and will make "surgical" changes to itsbusiness model. (Reporting by Steve Slater. Editing by Jane Merriman)