Eight banks fail EU stress test

15 July 2011 Last updated at 19:34 GMT Banks both inside and outside the eurozone were tested. Eight out of 90 European banks have failed stress tests designed to ensure they can withstand another financial crisis.

The European Banking Authority (EBA), which carried out the healthcheck, said another 16 banks were in the danger zone.

The EBA called on national financial regulators to ensure that capital shortfalls would be quickly resolved.

Five Spanish banks failed, as well as one in Austria and two in Greece.

On Wednesday, Germany's Helaba pulled out of the stress tests, effectively making it the ninth bank to fail.

Eight banks named

In Austria, the Oestereichische Volksbank failed the test, while in Greece two state-controlled banks - ATEbank and EFG Eurobank - fell at the hurdle.

In Spain, Catalunya Caixa, Pastor, Unnim, Caja3 and CAM failed, with seven others just scraping through the test.

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Banks will be under pressure to build their capital buffers, regardless of how they fared in the stress test”

End Quote Jason Karaian Economist Intelligence Unit However, Bank of Spain governor Miguel Angel Fernandez Ordonez said there was no need to inject further capital into the banks as the sector was already undergoing a fundamental restructuring.

The EBA added that 16 banks only just passed the tests. All the banks should "promptly" take steps to strengthen their financial cushion, the EBA said.

After the EBA announcement, the Bank of Portugal said two of the country's banks would immediately begin bolstering their finances.

Banco Comercial Portugues, the country's largest listed bank, and Espirito Santo Financial Group, will strengthen their balance sheets within three months.

Debt-heavy Portugal took a 78bn euro (?68bn) bail-out earlier this year. Its economy is forecast to contract 4% over the next two years.

The news came just as Italy's parliament approved a 70bn euro austerity package. The country's central bank said that all Italian banks had passed the tests with "an ample margin".

Default

A key benchmark for passing the test was whether the banks have at least 5% "core tier 1" capital, which describes the best form of capital a bank can hold to make up any losses.

One analyst told the BBC that, while some people would find the results reassuring, others would see them as evidence that the tests were not credible.

He said that demands from the financial authorities that banks began immediately to bolster their core capital "is an acknowledgement that there is a risk of sovereign default".

The failed banks would have to find an estimated 2.5bn euros in new funding by the end of the year, he said.

German bank Helaba disputes the way the authorities carried out its assessment

But analyst Jason Karaian of the Economist Intelligence Unit said that the total extra funding needed by banks would be far higher in the long run.

"Given that the markets are rewarding safety and security over growth and risk, banks will be under pressure to build their capital buffers, regardless of how they fared in the stress test.

"In the end, it would not be surprising to see hundreds of billions of euros raised in the coming quarters, with the most frenzied activity centred on banks with the greatest exposure to the euro area's wobbly periphery," he said.

As expected, the four UK banks passed the test - Royal Bank of Scotland, HSBC, Barclays and Lloyds Banking Group.

The Financial Services Authority said: "The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test, reflecting the work we and the banks have undertaken to improve resilience since the crisis."

Stringent

The tests are a key element in fighting Europe's debt crisis, intended to identify weak banks and ensure they are made robust enough to survive a possible default on government bonds by heavily indebted countries such as Greece.

However, the tests did not consider the impact of Greece defaulting, something some analysts believe is increasingly likely.

There have been concerns, including from the ratings agency Standard & Poors, that the tests were not strict enough. However, the EBA said they were more stringent than those it carried out last year.

In 2010, both Irish banks tested, Bank of Ireland and Allied Irish Bank, were given a clean bill of health. But just months later, AIB needed a government bail-out.

Each country's national banking regulators carried out a test that simulated what would happen to a bank's finances during a recession where growth falls more than 4 percentage points below EU forecasts.

On Wednesday, German bank Helaba withdrew from the stress tests to avoid public failure.

It said it would have passed the test if regulators counted a debt-equity hybrid, called "silent participation", as a capital reserve, but the EBA, having initially said it would accept this, then changed its mind.

"Under the EBA conditions the bank failed, that is clear," Helaba spokesman Wolfgang Kuss told the AFP news agency on Friday. "From our point of view we were successful," he added.

Meanwhile, the leaders of the 17 eurozone countries will hold an emergency summit next week in a bid to agree a deal on a second bail-out for Greece, the EU president announced Friday night.

Herman Van Rompuy called the meeting after disagreement over the contribution of banks and other private investors to a second rescue package.

The disagreement has overshadowed the financial markets, prompting some of the biggest share price falls for months.

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European banks 'can help Greece'

28 June 2011 Last updated at 08:39 GMT A 48 hour general strike is underway in Greece The boss of Italy's biggest bank says Europe's banks can work together with European institutions to help Greece.

"I think there is room for strong collaboration," said Corrado Passera, chief executive of Intesa Sanpaolo.

On Monday, French President Nicolas Sarkozy said French banks had agreed to extend their loans to Greece.

Eurozone officials are trying to find a way for banks to support Greece's bail-out without the country being judged to have defaulted on its debt.

Credit ratings agencies have warned that if banks agree to extend their loans to Greece, even voluntarily, they may judge it to be a debt default, which would cause even more problems for Greece.

President Sarkozy's idea was that when banks are repaid money they are owed by Greece, they should keep 30% of it, re-lend 50% of it to Greece for 30 years and put the remaining 20% into a special fund of high-quality bonds, which would insure them against a future Greek debt default.

French banks have the biggest exposure to Greek debt, while Italy has relatively low exposure.

The deal may be unpopular with Germany, because the new bonds would be insured by eurozone bail-out funds.

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There all manner of flaws and uncertainties in the scheme, according to bankers to whom I've spoken ”

End Quote Robert Peston Business editor, BBC News The French plan has yet to be agreed either with eurozone leaders or the Greek government.

BBC business editor Robert Peston says the real problem with the proposals is that there has been no attempt to reduce the amount of money that Greece owns, unlike in the Brady bonds for indebted countries such as Mexico, Argentina and Brazil, on which President Sarkozy's plans were based.

Nonetheless, German banks are reported to be very interested in the French model being discussed.

They were discussed by a group of international bankers, who met eurozone officials to discuss the crisis on Monday.

Also, the head of the eurozone's rescue fund, Klaus Regling, is talking to the ratings agencies to explore ways to avoid a second bail-out being considered a default.

European policymakers, notably the European Central Bank, are concerned that the bail-out could force European banks to recognise billions of euros in losses on Greek debts they currently hold, and could also trigger payouts on credit derivative contracts.

Credit derivative contracts are, in this case, bets that Greece will default on its debt. They are used partly as insurance by banks that have bought Greek bonds.

The Greek parliament is discussing a new range of austerity measures, which include introducing income tax on earnings of 8,000 euros (?7,142, $11,600), and is due to vote on the package later in the week.

The ruling party has 155 seats in a 300-seat parliament. Polls suggest the proposals are opposed by three quarters of Greece's 11 million population.

The austerity measures must be agreed before Greece can get its hands on the latest slice of the original 110bn euro support package.

A 48 hour general strike is underway in protest at the measures.

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Banks warned of Moody's downgrade

24 May 2011 Last updated at 08:52 GMT Watch: ETX Capitals' Manoj Ladwa says 'there is some weakness in the banking sector'

Fourteen UK banks and building societies have been told that their credit ratings may be cut because of the withdrawal of government support.

Moody's said on Tuesday it was reviewing banks including Lloyds and Royal Bank of Scotland, hitting the share prices of both firms.

Moody's sees less government support as possibly weakening the creditworthiness of some financial institutions.

A downgrade would raise borrowing costs for banks and building societies.

The Bank of England has already said that an emergency funding line - the Special Liquidity Scheme - will not be rolled over when it expires in January 2012.

Elisabeth Rudman, a Moody's senior credit officer, said: "The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government."

"It has been initiated in response to ongoing guidance from the UK authorities - the Bank of England, the Financial Services Authority and the Treasury."

The agency said that current levels of state support for the financial sector adds two to five notches of ratings uplift for the large UK banks and one to five notches of uplift for the smaller firms.

The ratings of Barclays and HSBC were not placed on review by Moody's.

Shares in Lloyds and RBS fell about 1%, but recovered slightly after the initial surprise at Moody's announcement subsided.

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