EUROPEAN BANKS STRESS TEST:NINE EUROPEAN Union banks have been given three months to raise nearly €3 billion in capital, while up to seven more will have to raise more within nine months, following the results of the European Banking Authority's highly-anticipated stress test.
Following sharp criticism of the the authority’s inquiry last year, which was seen as far too weak, the authority yesterday said this year’s examination had been “deliberately severe”, but markets were sceptical last night of how few banks failed the test.
Eight banks fell below the key Core Tier 1 capital threshold, short by €2.5 billion, while 16 were between 5 per cent and 6 per cent short – a figure that is far below the percentage demanded under the stress tests that were carried out recently on the Irish banks,.
Remedial action for those below 5 per cent will have to occur within three months, by October 15th, said Mr Enria, though those who are above 5 per cent, but who have a significant exposure to riskiest sovereign debt will have until April next year to improve their figures.
The authority’s annual examination has provoked anger among banks, with some unhappy about the amount of information disclosed last night.
One German bank, Helaba, withdrew from the process last week, while Spanish banks said the rules presented their cases unfairly .
However, authority chairman Andrea Enria, speaking at a London press conference, was adamant: “Nobody can withdraw the process. I would urge everybody not to underestimate the importance of the EBA recommendations, We expect it to be implemented,” he declared.
Unlike last year, the 90 banks examined by the authority were judged according to how much sovereign debt they held from the EU countries in most difficulties, Greece, Ireland and Portugal; last year sovereign debt was regarded as equally secure regardless of the issuing nation.
The figures will be closely examined over the weekend by financial analysts, though the report is likely to cause further turbulence in the markets when they reopen on Monday.
Mr Enria said the tests took account of the voluntary write-offs being considered by Greek bondholders.
Five Spanish banks were deemed to have failed the test – Cam, Pastor, Unnim, Caja3 and Catalunyacaixa. They reported capital ratios between 3 per cent and 4.8 per cent.
However, the Spaniards believe that they have been unfairly treated.
The poorest Greek performer was ATE, which reported a Core Tier 1 figure of 4.2 per cent, while EFG Eurobank, another Greek institution, came in with a 4.9 per cent figure per cent ratio. Austria’s Volksbanken reported a figure of 4.5 per cent.
The decision of Germany’s Helaba bank to pull out of the process after a bitter row with the authority meant its capital figures could not be released in last night’s report, but it is deemed to have failed the test.
Despite criticisms that the tests were again too lenient, the authority said it had provided “an unprecedented level of transparency on banks’ exposures and capital composition to allow investors, analysts and others to develop an informed view on the resilience of EU banking”.
Rejecting criticisms, Mr Enria said figures were based on banks facing challenges “for two years in a row” that were worse than anything that had been faced in reality so far, though British banks would see a quarter of their capital disappear if the forecasts became real.
The British prediction is beaten only by the Greek banks, who would lose 40 per cent of their capital in such an eventuality. The British weakness is based on its banks’ continuing dependence on wholesale funding.
EU finance ministers have already agreed that the banks that fail must raise capital, but it is not yet clear if seven “near-fails” can be forced by the authorities to do likewise, though market pressure is likely to force them into sell-offs.
