Basel 3 Will Hit Western Banks the Most

Get ready for less lending to riskier type of companies. Companies light in assets, high in debt will find their ability to source for loans curtailed. Asset base lending like mortgages will be easier. Those non-asset based borrowers will be pushed to the debt capital markets to issue bonds.

Ability of banks to pay dividends will be curtailed to preserve capital. Already, we are seeing DBS issue script dividend instead of cash.

Asian banks have average equity Tier 1 ratio under Basel 3 of around 9% vs 7.1% for Australia, 5.7% for Europe and 3.4% for Japan.

KBC, Credit Agricole, Soc Gen, Commerzbank and Deutsche Postbank look like they will issue much more equity, further diluting common shareholders.

At this point, I'd rather be a perferred share holder, convertible bond or bond holder of banks than to buy its shares.