With the results of Europe’s annual AQR, aka Stress Test, due out on Sunday, most had been expecting that despite some rhetoric that various brand name banks may fail, that it would be largely more of the usual: puff. That, however, may not be the case, and as Bloomberg just reported, a whopping 25 banks are set to fail the stress test, compared to 105 which are set to pass. As Bloomberg notes:
105 banks passed the test, draft document shows
Number of banks that would have shortfall even after capital-raising to Sept. 30, 2014, is the subject of ongoing talks, a person with knowledge of the matter says
Negotations continue with about 10 banks shown to have net shortfall after 2014 capital measures, the person says
An ECB spokesman says the central bank can’t comment on speculation about the outcome of the comprehensive assessment. Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final on Oct. 26, spokesman says
Note: the outcome is fluid and somehow still pending negotiation, some 48 hours before the announcement. How that makes the test any more credible is beyond our meager comprehension skills. More importantly, as we noted earlier, stress test failures means more ECB bailouts. Which is, of course, bullish.
Then again, some bad news for the panic-buying vacuum tubes – contrary to some expectations, notably the Fed’s, Deutsche Bank will not get a multi-trillions bailout and in the process make George Soros a trillionaire: from Reuters:
Deutsche Bank Set To Achieve 8.8 Percent Core Tier One Capital Ratio In Ecb’s Adverse Stress Test Scenario – Sources
Deutsche Bank Set To Achieve 12.6 Percent Core Tier One Capital Ratio In Ecb’s Baseline Stress Test Scenario – Sources
The G-20 is working to raise capital adequacy requirements on banks in the hope of preventing taxpayers from having to bail out any institution that might otherwise go bankrupt.
The group of 20 major economies is discussing whether to double the minimum capital-to-asset ratio, to 16% to 20%. The Financial Stability Board, which is joined by financial watchdogs across the world, next week will enter final talks on an interim report to be presented to G-20 finance ministers and central bank governors when they meet Sept. 20-21. An official agreement is expected to be reached at the G-20 summit in Australia in November. Implementation likely would not come before 2019.
Under consideration is a requirement for banks to hold more subordinated bonds in line with a bail-in clause. This would make investors bear losses in cases of effective bankruptcy. The intention is to give investors an incentive to help a zombie bank get on its feet before a government bailout is extended.>> Read More
Troubled Portuguese lender Banco Espirito Santo is expected to be split into “bad” and “good” banks under a multi-billion euro state rescue plan being hashed out by Lisbon and EU authorities, people familiar with the talks said on Sunday.
The plan, aimed at saving a bank that has been engulfed by the fall of the Espirito Santo family’s empire, includes using at least half of the 6 billion euros left from Portugal’s recently exited international bailout programme, these sources said.
The bailout money will be used to finance a special bank resolution fund set up by Portugalin 2012 that will in turn inject money into the new Banco Espirito Santo, or BES, “good bank”, these people said.
BES shares would be delisted under the plan, with shareholders likely to lose their investment, they added.
One source said the injection could be of at least 4 billion euros. It was not clear how the bad bank would be handled.
The plan, which is also being worked on by officials from the European Central Bank and European Commission, was due to be announced late on Sunday evening. Details were still being hashed out and an announcement could be postponed until Monday, the people familiar with the talks said.>> Read More
With one bound it was free. Bank of Ireland shares shed 2.2 per cent in early trade after it said it would issue €580m of new shares to help repay almost €540m of state aid in preference shares. The Irish government will sell the remaining €1.3bn of prefs it holds to private investors, so ending Dublin’s interest in the lender.
The bank last week said it was reviewing options for the €1.8bn of bailout funding. The new issue will cover repayment of €539m of prefs plus transaction expenses related to its capital package.
By repaying the prefs now at their issue price of €1 each, it Bank of Ireland avoids paying a 25 per cent step-up premium that would apply from next March.
The redemption also paves the way for Bank of Ireland to resume dividend payments in the fullness of time. As a penalty for receiving state aid, Bank of Ireland was restricted by the European Commission from paying dividends while the prefs were still owned by the Irish government.
Since 2009, the lender will have received €4.8bn cash from the state and repaid it €5.9bn for Dublin’s explicit support for and investment in the Bank of Ireland.
Germany’s fledgling anti-euro party poses an election threat to Chancellor Angela Merkel’s coalition after clawing support amid fresh Greek aid fears, analysts say.
The Alternative for Germany (AfD) is a small party calling for Europe’s top economy to ditch the single currency and, some pollsters say, could even exceed forecasts and leap into parliament after the September 22 vote.
Even if it doesn’t, in Germany’s delicate see-saw coalition system, the AfD could tip the balance by wooing disgruntled centre-right voters away from Merkel’s conservatives in her bid for a third term or from her already troubled allies.
“The AfD, above all, is drawing voters from the middle-class camp,” political scientist Jens Walther, of Duesseldorf University, told AFP, referring to Merkel’s Christian Democrats (CDU) and their Free Democratic Party (FDP) junior partners.>> Read More
Greece’s financial troubles will not end in 2014 and it is therefore realistic to expect the debt-laden country will need additional money from the euro zone before it can return to markets, the head of euro zone finance ministers said.
International lenders estimate that Greece will need around 10-11 billion euros ($13.1-14.4 billion) from the second half of 2014 to keep it going next year and in 2015.
But several euro zone governments are reluctant to extend any further loans because of negative public opinion, with voters tired of bailing out other countries after three years of the sovereign debt crisis.
“As far as the potential need for a third program for Greece is concerned, it’s clear that despite recent progress, Greece’s troubles will not have been completely resolved by 2014,” Jeroen Dijsselbloem told the European Parliament.>> Read More
India, 1991. Thailand and east Asia, 1997. Russia, 1998. Lehman Brothers, 2008. The eurozone from 2009. And now, perhaps, India and the emerging markets all over again.
Each financial crisis manifests itself in new places and different forms. Back in 2010, José Sócrates, who was struggling as Portugal’s prime minister to avert a humiliating international bailout, ruefully explained how he had just learned to use his mobile telephone for instant updates on European sovereign bond yields. It did him no good. Six months later he was gone and Portugal was asking for help from the International Monetary Fund.
This year it is the turn of Indian ministers and central bankers to stare glumly at the screens of their BlackBerrys and iPhones, although their preoccupation is the rate of the rupee against the dollar.
India’s currency plumbed successive record lows this week as investors decided en masse to withdraw money from emerging markets, especially those such as India with high current account deficits that are dependent on those same investors for funds. Black humour pervaded Twitter in India as the rupee passed the milestone of Rs65 to the dollar: “The rupee at 65 – time to retire”.
The trigger for market mayhem in Mumbai, Bangkok and Jakarta was the realisation that the Federal Reserve might – really, truly – soon begin to “taper” its generous, post-Lehman quantitative easing programme of bond-buying. That implies a stronger US economy, rising US interest rates and a preference among investors for US assets over high-risk emerging markets in Asia or Latin America.>> Read More