EU Agency to Announce Bank Capital Shortfalls
EU Agency to Announce Bank Capital Shortfalls Amid Criticism
Jason Alden/Bloomberg
The EBA estimated in October that the region’s financial institutions need 106 billion euros ($142 billion) to reach a goal of holding 9 percent of so-called core Tier 1 capital by mid-2012.
The EBA estimated in October that the region’s financial institutions need 106 billion euros ($142 billion) to reach a goal of holding 9 percent of so-called core Tier 1 capital by mid-2012. Photographer: Jason Alden/Bloomberg
The European Banking Authority will publish its review of how much capital lenders should raise to absorb losses from euro-area bonds amid criticism from German and Italian banks on the test methods and timing.
The results of the updated stress tests will be released at 6 p.m. central European time today, the regulator said in a statement on its website. The publication will coincide with the start of a European Union summit in Brussels to tackle the region’s sovereign-debt problems.
“The EBA risks adding more tension in a delicate moment,” Gregorio De Felice, Intesa Sanpaolo SpA (ISP)’s chief economist, said in an interview. “Europe is moving in the right direction and these measures are rowing against that tide.”
The EBA estimated in October that the region’s financial institutions need 106 billion euros ($142 billion) to reach a goal of holding 9 percent of so-called core Tier 1 capital by mid-2012, after marking their sovereign debt to market prices. European leaders are demanding banks increase capital after financial firms agreed to accept losses on Greek government bonds.
Italian lenders, which the EBA said needed 14.8 billion euros, had called for more time to meet the mid-2012 deadline for raising the money. German bank Landesbank Hessen-Thueringen, known as Helaba, said yesterday it would need 1.5 billion euros more than estimated because state participations didn’t comply with the regulator’s definition of core capital.
Inappropriate
The EBA capital measures are inappropriate in their “method, merit and timing,” Giovanni Sabatini, director general of Italy’s banking association, said Dec. 6.
Seventy banks were tested in October with data broken down by country. Spanish banks needed 26.2 billion euros and Italian banks 14.8 billion euros in core tier 1 capital, taking into account booking sovereign debt at market prices, the EBA said.
French lenders’ capital shortfall shrank from the October estimate of 8.8 billion euros ($11.8 billion), the EBA’s new test will show, a person with direct knowledge of the matter said.
The test will reveal that their capital situation improved due to profits in the third quarter, the person said, declining to be identified because the results are not yet public.
Updated Figures
The updated figures take into account sovereign holdings through the end of September, rather than the estimates, which used June data. U.K. banks probably won’t need to raise capital, Andrew Bailey, head of banking supervision at the FSA, told reporters last month.
“It’s tough for the EBA because events are moving so quickly that it’s very difficult for any stress test to keep up with actuality,” Richard Reid, director of research for the International Centre for Financial Regulation, said in an interview.
Helaba blamed “technical formalities” for needing more capital than originally estimated. The test doesn’t reflect the effect of the conversion of 1.92 billion euros in silent participations, a type of non-voting capital, held by the German state of Hesse, the bank said in a statement.
The lender would have a core Tier 1 capital ratio of 9.8 percent at Sept. 30 if the silent participations were recognized, the company said.
Protest
The Frankfurt-based lender released its data a day before the EBA planned to coordinate publishing of bank-by-bank results. Helaba pulled out of the EBA’s official stress tests in July two days before the regulator published the results in protest against the way the EBA calculated the final capital shortfall.
Regulators may ask German lenders to boost their capital levels by less than 10 billion euros, almost double the original 5.2 billion-euro estimate for the country’s banks in October, two people familiar with the situation said last week.
To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net.
To contact the editors responsible for this story: Anthony Aarons at aaarons@Bloomberg.net
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