Muenchener Hyp Completes Capital Increase for ECB Review

Muenchener Hypothekenbank eG, a customer-owned German mortgage lender, has almost doubled its capital ratio since the European Central Bank began examining its assets.

“We raised 400 million euros ($545 million) in core Tier 1 capital in the first half,” Chief Executive Officer Louis Hagen told reporters in Munich today. As a result, its capital ratio, a measure of financial strength, rose to 11.1 percent at the end of June, he said.

The achievement is the latest example of the buffer-building efforts under way at banks across Europe as the ECB wraps up its asset quality review this month. So far lenders have taken measures worth at least 104 billion euros to build up capital as part of the region-wide review, according to the central bank. Further disclosures of such steps are expected in their second-quarter results.

Muenchener Hyp is among 21 German banks under scrutiny from the ECB, part of a push to clean up balance sheets and spur lending to households and businesses. With 35 billion euros in assets, the Munich-based cooperative bank is one of the smaller lenders in the group.

Muenchener Hyp had a core Tier 1 capital ratio of 6.3 percent at the end of last year, less than the ECB requirement of 8 percent. In April it said it was surprised to learn that it would be held to the ECB’s tougher standards but expressed confidence it could raise the ratio to 9 percent by the end of June.

Hagen said then that company planned to raise core capital by 240 million euros, in part by selling equity to Germany’s 1,100 cooperative lenders. The process was to include the conversion of as much as 90 million euros in securities called silent participations.

Bigger Buffer

The lender missed the target by only turning 65 million euros of silent participations into core capital, Hagen said today. “The core Tier 1 capital ratio will rise to 12 percent if all additional commitments are made,” Hagen said. “We are now confident for the ECB’s stress test.”

Silent participations are funds that German state-owned and cooperative lenders received from their owners. They typically offer above-average returns and confer no voting rights.

Besides the asset review, the ECB is considering banks’ ability to withstand financial shocks, part of its preparations for taking over as Europe’s banking supervisor in November. The stress tests area due to be completed in October.

Earlier in July, Erste Group Bank AG, the Austrian lender earning most of its income in eastern Europe, said it will post a loss this year of as much as 1.6 billion euros as bad-loan provisions rise 40 percent more than forecast. Erste Chief Executive Officer Andreas Treichl said the measures will help the bank pass the ECB’s assessment.

DZ Bank AG, Germany’s biggest cooperative lender, last week raised 1.48 billion euros to improve its capital adequacy and increase buffers for further regulatory requirements.

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