By Max Colchester
LONDON--No major banks flunked Europe's stress test, but several
big lenders suffered close shaves.
The tests estimated how banks' capital ratios would hold up in a
deteriorating economy. Banks whose ratios sink below 5.5% of their
risk-adjusted assets needed to come up with additional capital.
Of the 123 banks that the European Banking Authority tested, 24
fell below that threshold. (An additional bank failed a similar,
overlapping European Central Bank exercise.)
But a total of 14 banks came closer to failing. They passed the
test with capital ratios between 5.5% and 7%. Those relatively near
misses mean the banks could face pressure to further bolster their
balance sheets to avoid regulatory and market questions about their
health.
In Italy, where nine banks failed the tests, some of the
country's top lenders squeaked by. Mediobanca SpA, a leading
investment bank, logged a capital ratio of 6.2% under the
worst-case scenario. UniCredit SpA, Italy's largest bank by most
measures, posted a 6.8% ratio.
In the U.K., the two giant lenders that were bailed out by
taxpayers during the crisis also passed with less than flattering
results. Royal Bank of Scotland Group PLC and Lloyds Banking Group
PLC scored 6.7% and 6.2% respectively. Ireland's Allied Irish Banks
PLC and the Netherlands' SNS Bank NV also narrowly passed.
Only one small German bank failed the test, a surprisingly
strong performance for a country whose lenders have been the target
of investor angst. But six banks--mostly small regional
lenders--came in below the 7% level, including HSH Nordbank AG.
It is unclear what the ramifications of a close pass will be.
Lloyds, which is 25% owned by the British government, is hoping to
resume paying dividends after the stress tests. Some investors
worry the underwhelming results may dull regulators desire to sign
off on a handout to shareholders. A Lloyds spokesman said the bank
welcomed the results. RBS issued a statement saying it "continues
to make good progress in improving" its capital ratios.
Mediobanca said that it passed the exercise. UniCredit didn't
immediately comment. SNS Bank said the test showed its resilience
even under "severe methodological restrictions." HSH Nordbank
didn't immediately return calls for comment. Allied Irish Banks
said that "comparisons are only valid when done on a consistent
basis." The bank said that when taking into consideration its
restructuring plan its ratio rises to 10.26%.
Analysts said that the reason several big banks passed by
relatively narrow margins was that the EBA's tests didn't
necessarily take into account actions taken this year. RBS and
Lloyds, for example, have been heavily restructuring their balance
sheet since then, including by selling business lines.
RBS and Lloyds will undergo a further stress test by the Bank of
England, which will present its results on Dec. 16. The central
bank said that the "EBA results should not be interpreted as
indicative of the U.K. results." This is in part because the Bank
of England will take into consideration management actions during
its modeled economic collapse.
Write to Max Colchester at max.colchester@wsj.com
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