Commerzbank Says Capital Covers Any Shortfall in ECB Test

Commerzbank AG, Germany’s second-largest bank, said it probably has sufficient capital to cover any shortfall should the European Central Bank decide the company hasn’t valued some assets correctly.

Commerzbank held 6 billion euros ($8.1 billion) to 7 billion euros more capital at the end of September than the ECB will require in the first stage of its assessment of bank balance sheets next year, Stephan Engels, Commerzbank’s chief financial officer said on a conference call with analysts today.

European officials have entrusted the ECB with overseeing the region’s financial system to prevent a repeat of the turmoil that set off the euro area’s worst recession since World War II. Commerzbank’s soured shipping and commercial real estate loans have sapped profit this year and prompted Standard & Poor’s to cut the company’s debt rating in May.

The ECB will begin to identify businesses that may carry more risk than stated by banks this year before reviewing the assets and stress-testing the companies in two phases next year.

“The hype and the discussions are mainly around the so-called risk portfolios,” Engels, 51, said. “Everybody assumes that ships is one of them and I can only reiterate what I’ve been saying, for I think now for four, five or six quarters we will remain cautious on shipping.”

Commerzbank set aside about 700 million euros for risky shipping loans last year and provisions will probably be at the same level this year and next, Engels said.

‘Prudent Valuation’

The bank’s management believes its assets are accounted for correctly and will continue to employ “consistent prudent valuations,” he said.

Engels said he can’t yet say how Commerzbank will perform in the stress test to be conducted before the ECB takes over as the supervisor for about 130 of the euro area’s biggest banks late next year.

“We don’t know what the stress test will look like, neither do we know what the thresholds will be,” he said.

The asset quality review, which will take place early next year, will require banks to hold common equity Tier 1 capital equivalent to 8 percent of their risk-weighted assets, the ECB said last month. That compares with Commerzbank’s capital ratio of 11 percent at the end of September when phasing in standards set under the global framework known as Basel III.

The subsequent stress test will use a stricter definition of capital, according to the ECB.

“The most important thing for me with regards to the selection process and asset quality review is that we get a level playing field for all countries involved,” Engels said on a separate conference call with reporters. “If that’s the case, then I’m pretty optimistic for our company.”

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