So, eight banks officially failed Europe’s 2011 stress tests.
Exactly 20 banks would have dipped below the 5 per cent Core Tier 1 capital pass rate had it not been for capital raising undertaken between January and April of this year, according to Reuters. But look closer because “mitigation” actions by the banks actually extend beyond capital raisings already done.
(Apologies in advance for the ugliness of the charts, and the many typos in them)
In Ireland, for instance, all three of the country’s banks would have failed had they not been able to recognise “other (existing and future) instruments recognised as appropriate back-stop measures by national supervisory authorities.”
In Germany, meanwhile, Norddeutsche Landesbank would have failed before Germany moved to add “supervisory recognised capital ratio after all current and future mitigating actions as of 31 December 2012.”
In Spain, BFA and Caixa de Ahorros de Galicia would have failed, had it not been for the release of those famous countercyclical capital/provisioning buffers. Five failed anyway.
In Italy, Banco Monte dei Paschi di Siena would have failed had it not been for back-stop measures, again.
In Portugal, BCP would have failed had it not been for future restructuring plans.
Look out too for Nova Ljubljanska Banka in Slovenia, which would have failed too had it not been for restructuring. Or Marfin Popular in Cyprus, which didn’t fail because of restructuring and backstops.
It’s not a great picture. And one not improved by the fact that the stress test includes a relatively light haircut to sovereign debt (just a bit off the top, please) and still includes things like government support for banks. Without which, the end 2010 picture would be very different, as the EBA notes. Some 18 banks would have found their Core Tier 1 below 5 per cent, with a shortfall of about €50bn.
Anyway, the mitigating measures were “substantial” according to the stress test administrators. They included €14.3bn of provisions, plus €28bn of those ‘existing and future actions.’
For reference, the total official capital shortfall in the tests was €2.5bn.
Related links:
Gaming the stress tests 101 - FT Alphaville
Standard & Poor’s speak the truth on Europe’s stress tests – FT Alphaville