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
A grateful hat tip to the FT’s Shahien Nasiripour for constructing and sending us the following basic spreadsheet.
It shows the discrepancy between the Fed’s estimates of how the largest banks would perform in its latest stress test scenario, versus how the banks themselves said they would fare (click to enlarge): Read more
The Oliver Wyman report landed last week. The headline was that Spain’s banks would need almost €60bn in new capital and that seven out of the 14 Spanish banks under review failed the ‘bottom up’ test.
The actual recap figure was €59.3bn, falling to €53.7bn because banks are allowed to count in both mergers in which they’re involved and deferred tax assets. We expressed some scepticism about those DTA’s and the rather hopeful proposition that… Read more
Seven (many already nationalised) lenders, comprising 37 per cent of Spanish banks’ loan portfolios, failed and need more capital. Seven lenders passed.
It’s almost €60bn, as initial estimates had suggested in June. Read more
That’s €51.8bn (how precise) from Roland Berger… and €62bn from Oliver Wyman…
Update — Here are the reports in full (click images for docs): Read more
Yes, we said they failed the Fed stress tests. But maybe it’s not quite so dire as it sounds.
First, remember that Citi’s tier one capital ratios only fell short by 0.1 per cent — they came in at 4.9 per cent rather than the 5 per cent minimum. Read more
Bank of America told regulators last year that it would sell its Texas retail unit and offload its US Trust wealth management arm if forced to raise capital in a stressed market, says the WSJ. The Fed required BofA to submit the capital-raising plans last year, and the list will form part of this year’s US bank stress tests. BofA said it could issue common stock before selling these businesses. An exit from Texas would mark a milestone for BofA: it acquired its footprint there in 1989 during the Savings & Loan crisis, as its first major national acquisition. Read more
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.
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
As part of their recommendations for the recapitalisation of banks, the European Banking Authority released some shiny new data around credit derivatives that are linked to European sovereigns on Thursday.
DTCC data on credit default swaps are released on a weekly basis. However, these data are aggregated such that it’s impossible to know anything about individual banks’ exposures. The banks disclose some information themselves, but it’s often netted and marked in a way that makes it pretty challenging to compare, contrast, and interpret meaningfully. Read more
The EBA results came out on Thursday and for all of the discussion around what constitutes high quality core tier one capital, there was faint mention of the massive countercyclical component contained therein.
An example of a countercyclical accounting buffer would be DVAs — the gains that banks can book as a result of a deterioration of their own credit worthiness. When they are doing badly, they get a boost to their earnings. When things start to get better, they have to take corresponding losses as the earlier gains are reversed. Read more
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
… same as the old Fed stress tests.
At least that’s the prediction of Nomura’s Glenn Schorr, whose note published on Thursday plays down any expectations that the forthcoming Comprehensive Capital Analysis and Review (CCAR, or “stress test”) will lead to increases in share buybacks or dividends. Read more
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
At some point on Wednesday, eurozone governments will say they want banks to find an unspecified amount capital, based on revised sovereign haircuts which… we still don’t know a lot about.
We know that sovereign bond positions will be marked down, or up, according to market values. (When the values will be taken, we don’t know either. Imagine marking five-year Italian debt at dates before and after this summer’s ECB intervention, for example.) We know at the very least that this all fits into a 9 per cent core tier one capital ratio target. Read more
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
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
Momentum is gathering behind the view that banks plan to shrink their way out of trouble – reducing risk-weighted assets, the denominator of capital ratios, rather than increasing equity, the numerator, explains the FT. This is in response to the EBA turning the stress tests up to nine (or maybe 10), according to FT Alphaville. German banks, however, protest that any risk assessment of European banks should be based on the current concept of capital requirements, and should not anticipate the Basel-III rules that are only supposed to come into effect from 2019, reports the FT. However, even if banks do seek to raise additional capital in private markets, they may find themselves facing an investor boycott, according to Bloomberg. Read more
We are still to hear from Europe’s Dick Bove on Wednesday’s FT banking exclusive…
(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… Read more
A predictably furious response from RBS to the FT’s front page splash on Friday. Read more
For now, the European Banking Authority’s 2011 stress tests are a starting point to determine the potential bill for recapitalising euro banks for their sovereign exposure. Most analyst estimates of capital needs — those big juicy €100bn, €200bn numbers that you come across– also tend to work from the EBA numbers.
That’s got us thinking about the test results again. In the first instance, about accounting for sovereign write-downs. And then in the second instance, about the treatment of deferred tax assets. Read more
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
Nervousness is growing in Whitehall that the government might have to inject further capital into RBS as part of a European effort to recapitalise the continent’s banking system, the FT reports, quoting an unnamed government official who said: “[RBS’s] sovereign exposure is not fundamentally worrying but if there is a broader European drive to recapitalise the banks it’s conceivable they may need more government money.” RBS received the world’s biggest bail-out during the financial crisis, at a cost of £45bn to the UK taxpayer. In the EBA’s July stress tests, which applied virtually no writedowns for eurozone peripheral bond holdings, RBS, Commerzbank, Deutsche Bank, Société Générale and UniCredit had stress test results in a grey area above the minimum but below 7 per cent. Once sovereign haircuts – likely to range from 20 per cent on Spain up to 65 per cent on Greece – are applied, those numbers will fall, in some cases sharply. Read more
A stress test calculator.
Have Eurozone policy makers finally got it?
The signs are certainly encouraging, says Citigroup. Read more
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. Read more
Europe’s top banking regulator has started to re-examine the strength of the region’s banks, modelling a big writedown of all peripheral eurozone sovereign debt, reports the FT. The exercise, conducted by the European Banking Authority, could potentially identify capital shortfalls across the banking system of as much as €200bn ($266bn). 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. Read more
Older entries
1Time to take basic income seriously?
2We cannae give the economy no more, we're giv'n it all we've got Captain
3On what really is different this time around
4The case for official e-money +1
5The WMP whack, revisited
Show more6Hacking and property prices make the BoE big league
7Mediocrity and the civil service in China
8Tax needn't be taxing. It can also be a Hungarian debt wheeze
9"Companies should know who really owns them..."
10The central bank (communications) bubble
Show fewer