Basel III to be less harsh than feared - BlackRock

FRANKFURT Thu Sep 9, 2010 9:46pm IST

A woman uses an ATM machine in Chelsea, central London, August 4, 2010. REUTERS/Andrew Winning/Files

A woman uses an ATM machine in Chelsea, central London, August 4, 2010.

Credit: Reuters/Andrew Winning/Files

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FRANKFURT (Reuters) - A new set of banking rules expected to be finalised over the weekend will not be as tough as feared by some market participants, a BlackRock fund manager said, but cautioned about the sector's long-term momentum.

Regulators and central bank officials are expected to wrap up discussions about new capital rules for the financial sector as soon as this weekend, German Bundesbank President Axel Weber said on Wednesday.

Investors are bracing for details of the new standards, dubbed "Basel III", as they will determine rules on liquidity and the amount of capital banks need to hold to defend themselves against future crises.

"We think that the Basel III rules will be less harsh for the banking sector than feared 6-12 months ago," Andreas Zoellinger, co-manager of the BlackRock Euro-Markets Fund, told Reuters in an interview on Thursday.

In anticipation of rules less tough than first thought, Zoellinger said the fund shifted its underweighting of the banking sector in early July to -1.5 percent from -4 percent versus its benchmark, the MSCI EMU Index.

Financial stocks account for about a quarter of the fund that invests mainly in euro zone countries and has a volume of about 1.44 billion euros ($1.83 billion).

Top holdings include Spain's Banco Santander, France's Societe Generale and BNP Paribas, Germany's Deutsche Bank, and Italy's UniCredit.

However, Zoellinger said that the fund's long-term view on the banking sector was negative. "The industry is developing towards less risk and more stable business. But this also means we are seeing less earnings momentum (in the long term)."

He was more confident about mid-term economic trends in the euro zone, saying the region would see positive growth over the next two to three years. European Central Bank Executive Board member Juergen Stark cautioned on Tuesday that the euro zone economy was subject to risks next year.

(Editing by David Cowell)

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