Spain and Italy’s leading banks were the strongest performers in last week’s European stress tests, in a surprise result that could help relieve the funding pressure that had been building on them.
The European Banking Authority, which conducted the exercise, found an aggregate capital shortfall of only €2.5bn ($3.5bn) at eight banks, prompting criticism that the tests were not tough enough, in part because they did not account for any sovereign failure even as Greece teeters on the brink of default.
A ninth bank, Germany’s Landesbank Helaba, also failed but refused to disclose its result as part of the exercise.
But investors who have studied the results and associated disclosures of the EBA test say the clean bill of health given to the likes of BBVA and Santander in Spain, and Italy’s Intesa Sanpaolo, could provide a timely boost. Such groups have been dragged down by sentiment towards their home countries and have experienced difficulties securing short-term finance at reasonable rates.
“The results draw a distinction between those banks that have unquestionably strong funding and capital and those that don’t,” said Daniel Davies, banks analyst at Credit Suisse.
The strength of European banks – and their ability to absorb potential losses in the event of a sovereign default – is a crucial aspect of talks between bank bosses and the continent’s political leaders of how Greek debt should be restructured.
Angela Merkel, the German chancellor, said on Sunday that she would attend Thursday’s planned European summit in Brussels only if there was going to be an agreement to resolve the Greek financial crisis, which she believes should involve private creditors.
“The greater the voluntary contribution the private creditors make, the less likely will it be that further steps will be needed,” she said, dismissing calls for a formal rescheduling of Greek debt.
The ranking of the strongest banks in the test, regardless of size, was dominated by small lenders, such as Spain’s Banca March, and institutions, such as Ireland’s Irish Life and Permanent, which have been artificially boosted by government bail-out money. Scandinavian lenders also ranked highly.
Among eurozone blue-chip banks, BBVA topped last week’s stress tests with a core tier one capital ratio of 9.2 per cent, even after modelling for a range of economic problems including declining gross domestic product, rising unemployment and a further fall in property prices.
Intesa came next with a ratio of 8.9 per cent, ahead of Dutch group ING on 8.7 per cent, France’s Crédit Agricole on 8.5 per cent and Santander on 8.4 per cent.
According to Mr Davies and other analysts at Credit Suisse, BBVA, HSBC and Intesa still top the list when more realistic sovereign stress models are factored in. However, questions persist over the quality of the data used in the test, including patchy disclosures from some banks of their country-by-country credit exposures.
The European Banking Authority, which conducted the exercise, found an aggregate capital shortfall of only €2.5bn ($3.5bn) at eight banks, prompting criticism that the tests were not tough enough, in part because they did not account for any sovereign failure even as Greece teeters on the brink of default.
A ninth bank, Germany’s Landesbank Helaba, also failed but refused to disclose its result as part of the exercise.
But investors who have studied the results and associated disclosures of the EBA test say the clean bill of health given to the likes of BBVA and Santander in Spain, and Italy’s Intesa Sanpaolo, could provide a timely boost. Such groups have been dragged down by sentiment towards their home countries and have experienced difficulties securing short-term finance at reasonable rates.
“The results draw a distinction between those banks that have unquestionably strong funding and capital and those that don’t,” said Daniel Davies, banks analyst at Credit Suisse.
The strength of European banks – and their ability to absorb potential losses in the event of a sovereign default – is a crucial aspect of talks between bank bosses and the continent’s political leaders of how Greek debt should be restructured.
Angela Merkel, the German chancellor, said on Sunday that she would attend Thursday’s planned European summit in Brussels only if there was going to be an agreement to resolve the Greek financial crisis, which she believes should involve private creditors.
“The greater the voluntary contribution the private creditors make, the less likely will it be that further steps will be needed,” she said, dismissing calls for a formal rescheduling of Greek debt.
The ranking of the strongest banks in the test, regardless of size, was dominated by small lenders, such as Spain’s Banca March, and institutions, such as Ireland’s Irish Life and Permanent, which have been artificially boosted by government bail-out money. Scandinavian lenders also ranked highly.
Among eurozone blue-chip banks, BBVA topped last week’s stress tests with a core tier one capital ratio of 9.2 per cent, even after modelling for a range of economic problems including declining gross domestic product, rising unemployment and a further fall in property prices.
Intesa came next with a ratio of 8.9 per cent, ahead of Dutch group ING on 8.7 per cent, France’s Crédit Agricole on 8.5 per cent and Santander on 8.4 per cent.
According to Mr Davies and other analysts at Credit Suisse, BBVA, HSBC and Intesa still top the list when more realistic sovereign stress models are factored in. However, questions persist over the quality of the data used in the test, including patchy disclosures from some banks of their country-by-country credit exposures.
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