Deutsche Bank, Commerzbank, BayernLB Pass Stress Test
Chief executive officer of Deutsche Bank AG Josef Ackermann. Photographer: Hannelore Foerster/Bloomberg
June 29 (Bloomberg) -- John Lipsky, first deputy managing director of the International Monetary Fund, talks about the fiscal policies in the major European economies and the meeting of Group of 20 leaders last weekend. Lipsky, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," also discusses the European Union's plan to conduct stress tests on its largest banks. (Source: Bloomberg)
June 29 -- Ralph Silva, founder and strategist at Silva Research Network, talks about European bank stress tests and the prospects for bank insolvencies in the next year. Silva speaks with Francine Lacqua on Bloomberg Television's "Countdown." (Source: Bloomberg)
The Bayerische Landesbank logo is seen at the bank's headquarters in Munich. Photographer: Guido Krzikowski/Bloomberg
Deutsche Bank AG, Commerzbank AG and Bayerische Landesbank passed a stress test that evaluated how about 25 European lenders would weather an economic downturn, said three people familiar with the results.
The three German lenders’ tier 1 capital ratio, a key measure of financial strength, exceeded a threshold of 6 percent under the economic scenario, said the people, who declined to discuss the performance of banks outside Germany. The tests didn’t include sovereign debt, two people said.
The results are based on information from April that was passed on to financial regulator BaFin and the Committee of European Banking Supervisors, the people said. European Union leaders pledged on June 17 to disclose the results of stress tests by the end of July, after doubts about Greece’s ability to repay its debts undermined confidence in the region’s banks.
“This is definitely good news, even if I’m not surprised they passed,” said Philipp Haessler, a Frankfurt-based analyst at Equinet AG. “The idea of publishing the stress tests is good because it can help calm the market.”
Spokesmen for Frankfurt-based Deutsche Bank and Commerzbank, Germany’s two biggest lenders, and state-owned BayernLB of Munich declined to comment.
Bundesbank President Axel Weber told German lawmakers last week that tests on European banks may be extended to 100 lenders, said Hans Michelbach, the deputy finance spokesman in parliament for Chancellor Angela Merkel’s Christian Democratic bloc.
Expanding Tests
The Bundesbank, Germany’s central bank, and financial regulator BaFin plan to meet with officials from the country’s largest lenders tomorrow, people with knowledge of the matter said. They will discuss expanding the stress tests to more participants, including additional criteria and whether Germany’s state-owned banks, the Landesbanken, will agree to publication.
Deutsche Bank, Commerzbank and BayernLB conducted internal stress tests based on criteria such as stalling economic growth and rising unemployment, the people said, and gave the results to the national and European regulators.
The next test, which is called Euro System Stress Tests, may combine the first test with expanded criteria that includes sovereign-debt risk, the people said.
Without including sovereign risks “the meaningfulness of the tests is limited, and the market will shelve them quickly,” said Konrad Becker, an analyst at Merck Finck & Co. in Munich.
Injecting Capital
If any of the German lenders fail future stress tests, the aim is to announce simultaneous plans to inject capital, two of the people said. Germany’s bank-rescue fund, Soffin, may be used to boost capital if needed, they said.
Stress tests on EU banks should assess sovereign-debt risks when calculating how lenders would perform against shocks to the banking system, according to a draft EU document.
Finance ministers from the 27 EU countries, who will discuss the stress tests at a meeting in two weeks, also will ask the Committee of European Banking Supervisors to extend them to include a “significant market share of institutions” in each nation, according to the draft, which was obtained by Bloomberg News. The paper, dated June 25, was prepared for a July 12-13 meeting of EU ministers in Brussels.
The EU leaders pledged to publish the stress test results after an announcement by the Bank of Spain that it would make its findings public.
Tough and Realistic
Stress tests on European banks should be “realistic” about potential risks, and the results will be disclosed similarly to the way the U.S. released assessments of its banks last year, the No. 2 official at the International Monetary Fund said.
European regulators’ tests need to be “tough enough and realistic enough,” John Lipsky, the IMF’s first deputy managing director, said in an interview today on Bloomberg Television. “The level of transparency will be broadly equivalent to what we saw here in the U.S.”
In May last year, U.S. regulators released results of stress tests on 19 banks that concluded losses at those institutions could reach $599.2 billion through 2010 if unemployment rose and home prices tumbled. The government gave 10 of the banks, including Bank of America Corp, Wells Fargo & Co. and Citigroup Inc., six months to raise a combined $75 billion.
To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net To contact the reporters on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net. Karin Matussek in Berlin at kmatussek@bloomberg.net
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