08:29
MarocTique
25 Banks as Italy Fares Worst in Stress
Twenty-five lenders includingBanca Monte dei Paschi di Siena SpA failed a stress test led by the European Central Bank, which found the biggest capital hole in the region’s banking system lurking in Italy.
The Frankfurt-based institution identified a total shortfall of 25 billion euros ($32 billion), most of which has since been raised by banks. Italy’s Monte Paschi (BMPS) and Banca Carige (CRG) must now find a combined total of 2.9 billion euros between them, the ECB said today.
“The capital shortfall is at the lower end of expectations,” said Jon Peace, a banking analyst at Nomura Holdings Inc. in London. “It was always going to be a challenge for the ECB to convince the market of its credibility if it was going to be a small number which failed and capital to be raised.”
None of Europe’s largest banks failed. French and Spanish institutions passed the test, while no German one was required to raise more capital. Lenders found to be deficient now have as many as nine months to fill gaps identified by the ECB as part of its health check of the banking system, which was intended to close the door on half a decade of financial turmoil in the euro region.
That exercise comprised of a stress test and an Asset-Quality Review of balance sheets as of Dec. 31, 2013. It was conducted in tandem with the London-based European Banking Authority, which also released results today. The EBA’s sample largely overlaps the ECB’s, though it also contains banks from outside the euro area.
Italian Banks
The ECB assessment showed banks in President Mario Draghi’s home country of Italy in particular are in need of more funds as they cope with bad loans and the country’s third recession since 2008. Monte Paschi, Italy’s third-biggest bank, Banca Carige SpA and two other smaller cooperative lenders have a combined 3.3 billion-euro gap that must be replenished because the measures taken this year weren’t sufficient, ECB data show.
“The minister is confident that the residual shortfalls will be covered through further market transactions and that the high transparency guaranteed by the Comprehensive Assessment will allow to easily complete such transactions,” Italy’s finance ministry said in a statement.
Of the 13 banks that the ECB identified as having not raised enough capital, two Greek ones are exempted because their repair plans are already in progress.
Banco Comercial
In Portugal, Banco Comercial Portugues SA was found to have a shortfall of 1.15 billion euros, according to the ECB. Even so, that bank said in a statement today that it has raised enough capital this year to cover the gap.
“The Comprehensive Assessment allowed us to compare banks across borders and business models,” ECB Supervisory Board Chair Daniele Nouy said in a statement. “The findings will enable us to draw insights and conclusions for supervision going forward.”
The ECB said lenders will need to adjust their asset valuations by 48 billion euros, taking into account the reclassification of an extra 136 billion euros of loans as non-performing. The stock of bad loans in the euro-area banking system now stands at 879 billion euros, the report said.
Italian banks will have to implement the largest asset-value adjustments according to the findings of the review, equivalent to 12 billion euros. Greek banks will have to revalue by 7.6 billion euros, and German banks by 6.7 billion euros, the report showed.
Stress Scenario
Italian lenders were buffeted by the stress test, suffering a hit to capital of 35.5 billion euros, followed by French banks with 30.8 billion euros. German banks would see capital reduced by 27 billion euros in the stress scenario, the report said.
Under the simulated recession set out in the assessment’s stress test, banks’ common equity Tier 1 capital would be depleted by 263 billion euros, or by 4 percentage points. The median CET1 ratio -- a key measure of financial strength -- would therefore fall to 8.3 percent from 12.4 percent.
Nouy has said banks will be required to cover any capital shortfalls revealed by the assessment, “primarily from private sources.”
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