December 11, 2011
EBA recapitalization results - EU set for a busy 2012 start
EBA (European Banking Authority) recapitalization results were released on 8th Dec, influencing some markets and surprising some banks.
It is important to note that this exercise was not a new stress test, but an update of the Oct Stress test results with current bank holdings data. In this excercise, no adverse macro-economic scenarios were applied to the figures provided by the banks.
It is certainly going be a busy start to 2012 with the Jan 20 deadline for the banks shortfall makeup plans to their respective national regulators.
The Oct. capital were indicative only based on banks estimates on capital positions and sovereign exposures. In this exercise, EBA used banks capital positions and sovereign exposures as at the end of September, rather than June estimates used in Oct.
On a related note, many banks are still in early stages of adoption and fine tuning of the new tougher Basel, CRD3 method of assigning & calculating the increased risk weights for Trading book. This exercise did reduce capital for some banks that sold off assets and retained higher percentage of their earnings.
Results:
- The overall capital shortfall was euro 115bn, nearly 8 percent above Oct estimate of euro 106bn.
- 71 percent of Europe’s banks are required to boost up their Tier 1 capital ratio to a new 9 percent by end of 2012 June.
-Some of individual countries are listed below by the decreasing order of capital required:
Greece: 30bn
Spain: 26.17bn
Italy: 15.4bn
Germany: 13.1 bn(6 of 13 banks tested)
France: 7.3bn (4 largest banks)
Portugal: 6.95bn (4 largest banks)
Belgium: 6.1bn
Austria: 3.9bn
Cyprus: 3.5bn
Way Forward for impacted banks:
- Jan 20, 2012 deadline to submit a "shortfall makeup" plan to respective national regulators
- End of June 2012 deadline to achive zero shortfall
Along with results, EBA also issued guidelines for bonds-Buffer convertible capital securities(BCCS)-a type of unsecured debt that converts into stock once capital trigger is breached. BCCS issue has very strict criteria.EBA is classifying bonds as a type of hybrid tier 1 capital.A banks overall capital can count these bonds.Some of the measures that the banks could adopt: Stop and or reduce dividend payouts; Convert capital on their balance sheet into equity.Contingent capital or coco, bonds could be an option too for banks.
Research sources: EBA, Financial Times
Posted by spachava at 09:20 PM
| Comments (0)
