Posts tagged 'EBA'

We’d prefer to be compared with our previous attempts, thanks very much

Stress tests in Europe maybe aren’t the mugging by reality they used to be… they’re putting up a little bit more of a fight this time. Though how much?

Here’s Citi cruelly putting the European Banking Authority’s recently released methodology against the US’s CCAR:

In the EU, the proposed adverse scenario leads to an overall cumulative deviation of EU GDP from its baseline level by 7.0% over the 3-year period to end-2016, with EU unemployment deviating by 2.9% versus the baseline scenario. This would imply a cumulative real GDP decline of -2.1% over 3-years, notably less than the stress applied in the US CCAR (a -4.75% decline over 15 months) and a peak unemployment rate of 13.0% versus US CCAR 11.25%. Equity prices are expected to decline by 19% relative to the baseline (US CCAR -50% decline), residential house prices by -21% (US CCAR -25%) and commercial property prices by -15% (US CCAR -35%).

Also, no deflation in the EU adverse scenario? Read more

The quiet arrival of euro-wide banking regulation

So you maybe thought that pan-European financial regulation was an age away, with the slow-moving timetable set by reluctant German policymakers, and never-ending disagreements over bailouts.

Well, it turns out that so far as the fit and proper test for key bankers is concerned, this is already subject to EU law and not just national law. Read more

Stress you next year

This is one way to respond to the mess Euroland is in over who should make the calls for recapitalising banks…

The European Banking Authority is delaying its next banking stress test to 2014, to wait for both new asset-quality reviews and the ECB’s Single Supervisory Mechanism (so is it to wait for Wolfgang Schaeuble?): Read more

EuriBORE: oh sorry, does this fat finger belong to you?

The ESMA-EBA published their report on the administration and management of Euribor on Friday. Among the outline of the now familiar shortcomings of such benchmarks were tables demonstrating basic operational failures, e.g. fat finger errors by panel banks… Read more

Of baby steps and EBA bank recaps

Right, we don’t want to get too “milk and cookies” about this but we have just one or two points to make about the European Banking Authority’s update on its bank recap exercise released on Wednesday. Some detail from the FT (with our emphasis):

European regulators have hailed their exercise to force the continent’s banks to buttress themselves with fresh capital as a resounding success, revealing 27 banks deemed to have a capital shortfall of €76bn last autumn raised a combined €94.4bn by the end of June deadline… Read more

Big banks to EBA: just about done here?

Yeah, we knew the LTRO-inspired rally would make it easier for European banks to start closing the gap between their capital ratios and those required by the EBA — or at the very least, as in the case of Commerzbank, embolden them to announce big plans for doing so.

The EBA — remember all that tough talk last October about monitoring banks closely to make sure the recap was asset sales-light and capital raise-heavy? — is amusingly eager to disavow credit for any recent improvements. Just banks doing their thing, especially if by “their thing” one means “breathing easier now that they’re allowed to pledge dirty skivvies to fund themselves, and shareholders are off their backs for the moment”.  Whatevs. Read more

The EBA bank recap, broken down

No deleveraging because of our recapitalisation exercise, really — or if there is, you’ll hardly notice it. So says the European Banking Authority in a Thursday night release:

(Warning: pie charts follow) Read more

European banks offer new capital proposals

European banks are proposing capital-raising measures that go beyond regulators’ demands and would cut only a small amount of lending to the real economy, according to a preliminary assessment of the plans by the European Banking Authority, reports the FT. In December the EBA identified a capital shortfall of €115bn at 30 banksand told the institutions to come up with plans to raise their core tier one capital ratios to 9 per cent of their risk-weighted assets by July.


Bizarre trade reasoning of the week?

Courtesy of the Credit Strategy team at SocGen on Friday, the following trade idea:

Buy Barclays 5-year senior or sub CDS vs the iTraxx Main: Barclays is one of the largest sellers of CDS on European sovereigns, according to EBA data, and its CDS is trading at close to five-year lows relative to the iTraxx Senior financials. As such, we believe the best way to position for a possible CDS event on Greece is via Barclays.

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The EBA 9% rule and the Eurozone crisis

Back in October 2011, James Ferguson, banking analyst at Arbuthnot Securities, warned that the EBA’s tough new capital rules could be about to make the eurozone crisis a whole lot worse because the absence of fresh capital meant banks would have no other choice but to contract their assets.

Or as he wrote: Read more

All is for the best in the best of all possible Commerzbanks

Shares in Commerzbank were up about 11 per cent at pixel time. It’s generally a strong day for European banks as well, but we suppose (bemusedly) it’s following this statement from the German lender on its €5.3bn capital hole

The capital requirement in accordance with the EBA methodology could be reduced by the end of 2011 from EUR 5.3 billion by EUR 3.0 billion thanks to risk-weighted asset reduction (Core Tier 1 relief approximately EUR 1.6 billion), a reduction in regulatory capital deductions (some EUR 0.2 billion) and retention of earnings in the fourth quarter 2011 (approximately EUR 1.2 billion). As of year-end 2011 Commerzbank has thus already fulfilled 57 % of the EBA capital requirement. Read more

The rights are going out all over Europe

A rough ride for UniCredit shares, and rights to buy its shares as part of the bank’s €7.5bn cash call, on Monday — they fell, got suspended limit down, and are dropping again (down 6.4 per cent) at pixel time.

It’s the rights’ first day of trading, so it’s worth asking why it’s so volatile. Read more

European banks ‘need tons of money’, says GMO

In a note released on Tuesday, GMO, the global asset management firm headed by Jeremy Grantham, writes that “European banks need tons of money” to correct capital shortfalls. This much, we know.

But the five scenarios used by Richard P. Mattione, the firm’s head of macroeconomic research, for why banks will need to raise much more capital should prove familiar to FT Alphaville readers. Mattione uses data from the July EBA tests and July BIS data, so be warned. In fact, there are a few points here that seem to be behind the results of the latest EBA efforts. Read more

Is there a world outside EBA capital targets? [updated]

Update — FT Alphaville has heard that the answer to this question is in fact… yes. See below for more details.

The official EBA numbers on European bank capital shortfalls are out. In aggregate it’s €114.7bn. Read more

Here comes the (cross-border) bank deleveraging

In our history lesson after the eurozone summit ended, we cited the European Banking Authority’s Q&A on its requirement that banks raise €106bn as part of the bank recapitalisation plan.

The language was tough and tried to ease concerns that banks would excessively deleverage to meet capital requirements. But it was also (necessarily) vague, and there were no details on the extent to which the banks would be permitted to shed risk-weighted assets as they go about meeting those requirements. Read more

EBA: €106bn of bank capital needed — we think

Updated — We’ve added a bit more on how the EBA might treat convertible bonds as part of the capital targets. Also see the FT’s reporting on the issue.

The key chart from the European Banking Authority’s release late on Wednesday night (featuring as its target the widely trailed 9 per cent Core Tier 1 capital rato for banks): Read more

Welcome to the European bank recap jungle

It gets worse here every day, et cetera.

The FT’s Peter Spiegel has a bit of tonight’s draft eurozone statement as it pertains to bank recapitalisation: Read more

Gilt-stuffed and shrinking: euro banks’ capital hole

It’s afternoon in New York, which means at least one of the following is about to happen:

1. The abrupt appearance of odd confectionery in the FT bureau. Read more

The not so great European banking recap

Are you confused by the ‘facts’ and figures on the latest bank stress test?

These charts (click to expand) from Morgan Stanley’s Huw Van Steenis should help. Read more

You’re all wrong (on RBS)

A headline like that can only mean one thing — another rant from Europe’s Dick Bove.

In Friday’s note, Evolution’s Ian Gordon slams regulators, the press and his peers for their stupid coverage of his beloved RBS. He even goes as far as to call for an FSA investigation into recent coverage of the bank! Read more

Taking the stress test to nine (ex-bad stuff)

Just like the good old days. A Pestowire ‘exclusive’ on banking recapitalisations.

From the BBCRead more

Taking the stress test to seven

(Reuters) European Union banking regulator EBA has demanded that lenders achieve a core tier one ratio of at least seven per cent in the current round of internal stress tests, banking and regulatory sources told Reuters on Tuesday.

It remains unclear whether capital that qualifies as core tier one will be defined according to rules known as Basel III, or whether an earlier version, known as Basel 2.5 will be applied, these sources said…

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Bailing out RBS

A predictably furious response from RBS to the FT’s front page splash on Friday. Read more

Accounting for sovereign stress

Or the trouble “reviewing bank capital positions” — euphemism du jour from the European Banking Authority.

The EBA’s denied on Thursday that they’ll do actual new stress tests on banks in order to model bigger write-downs of peripheral sovereign debt and possibly identify where more capital is needed, as the FT reported. This worries us regarding how useful any EBA input will be. Read more

Banks face new European stress tests

The European Banking Authority has started to re-examine the strength of the region’s banks, modelling a big writedown of all peripheral eurozone sovereign debt, the FT reports.  The regulator is also closely involved in talks with European officials and governments over mechanisms that could be used to forcibly recapitalise banks, enabling them to cope with sovereign defaults. Citing senior officials involved in the process, the newspaper says the EBA has been instructed to provide a country-by-country breakdown of how much new capital banks would need in the event that Greece’s bonds were written down. Angela Merkel, the German chancellor, said she was prepared to recapitalise her country’s banks if necessary. The IMF also gave its support for a quick recapitalisation. Antonio Borges, the IMF’s Europe director, pegged the cost of a Europe-wide recapitalisation at €100bn-€200bn, and urged leaders to require all European banks to take part. However France signalled it was uncomfortable with the accelerating talk of recapitalisation, insisting its banks did not need help.

Europe bank regulator plans radical funding aid

Europe’s top banking regulator is drawing up options to help banks in Europe struggling to tap credit markets for medium- and long-term funding, the FT reports. Among the policy proposals being considered by the European Banking Authority is a new guarantee scheme for bank bonds, a controversial measure that would require the eurozone’s €440bn bail-out fund to be given new powers. The EBA proposals are expected to be presented to a meeting of senior European officials next week. Even before submitting its analysis, however, the EBA is facing stiff resistance from some member states unwilling to reopen a deal struck last month, which would give the bail-out fund – formally the European financial stability facility – new but less expansive powers.

Mirror, mirror on the wall, who has the highest DTAs of all?

Deferred Tax Assets (DTAs) have been mentioned (usually critically) on this blog many times before. Put very simply, they are tax carryforwards that can be included in banks’ Core Tier 1 capital ratios.

Unsurprisingly then, they make quite an appearance in the recent European stress tests. Read more

Playing provisions to pass a test

It’s not hard to criticise the methodology of Europe’s stress tests.

From the inclusion of mitigating factors not yet undertaken by banks, to the lack of a full sovereign default, you can take your pick, really. With that easy target-ness in mind then, we thought we’d mention one more, just because it hits on a wider weakness in bank results and accounting. Read more

European bank admirers anonymous

Let the stress test analyses commence…

Aside from the their acceptance of “mitigation” measures taken by the tested banks, one of the big criticisms European Banking Authority’s stress tests is the rather mild sovereign scenarios they considered. Read more

Investors eyeing stress tests

Banks that scraped through the European Union’s stress test of 90 lenders will start feeling the heat Monday from investors to beef up capital buffers, Reuters says, although a wide sell-off was not anticipated by analysts or regulators. The relatively small shortfall identified by the European Banking Authority in the results, released after markets closed on Friday, sparked more accusations that the tests were not adequate. The failure to include a Greek default also irked investors, says Bloomberg.   However the clean bill of health given to larger Spanish and Italian banks may relieve funding pressures on BBVA, Santander and Intesa Sanpaolo, the FT says.