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Italy fares worst in EBA stress test failing 24 banks showing a deficit of 24.6 billion euros
The European Union’s toughest-ever stress test was meant to leave banks with nowhere to hide. The results show how the bloc’s capital rules got in the way.
A total of 24 lenders failed the European Banking Authority’s stress test with a capital shortfall of 24.6 billion euros ($31.2 billion). The EBA used EU rules as applicable over the three-year horizon of the test. These give national supervisors scope to allow banks to count instruments whose eligibility as core capital will be gradually eliminated over the next four years.
Had the fully phased-in EU rules been applied, the number of failures would have increased to 34, according to a calculation by Bloomberg News based on EBA results published in Londontoday. That may be the more reliable gauge, since capital is a measure of a bank’s capacity to absorb losses, and the jury’s still out on how well instruments such as goodwill and some deferred tax assets, admitted in the definition of capital used in the stress test, could do that job.
“The smart people will be looking at the fully loaded ratio, as that’s the one that really shows how strong banks are,” said Nicolas Veron, a fellow at the Brussels-based Bruegel research group. By providing this information, “the EBA is giving the market the tools to apply pressure on banks.”
The EBA put 123 banks in 22 countries through the stress test, which was carried out by theEuropean Central Bank and national supervisors. It provided the so-called fully loaded capital ratio for the first time. The ECB also released the results of its Comprehensive Assessment inFrankfurt today as it prepares to assume oversight of euro-area banks on Nov. 4. The EBA’s sample largely overlaps the ECB’s, though it also contains banks from outside the euro area.
To pass in the EBA’s baseline three-year scenario, which followed European Commission economic forecasts, a bank’s ratio of common equity Tier 1 to risk-weighted assets had to remain above 8 percent. In the adverse scenario, which included a hypothetical recession and bond-market collapse, the pass mark was 5.5 percent. The results are based on banks’ balance sheets at the end of 2013.
To clear the stress-test thresholds, some banks made liberal use of instruments, whose admissibility as core capital will be gradually phased out under the EU’s Capital Requirements Regulation.
While on average banks’ core 2016 capital level in the stress tests was 8.5 percent, this would have dropped to 7.6 percent had a fully loaded definition of capital been used.
Banks that passed the stress tests, and whose core capital level would have fallen below the 5.5 percent pass mark had a fully-loaded capital definition been used, include Greece’s Alpha Bank AE (ALPHA), Bank of Ireland and Raiffeisen Zentralbank Oesterreich AG, the main shareholder of Austria’s Raiffeisen Bank International.
Bank of Ireland (BKIR)’s capital ratio plunges to 2.9 percent from 9.3 percent, while Spain’s Liberbank SA sees its ratio fall to 2.9 percent from 5.6 percent.
Three German banks -- HSH Nordbank AG, DZ Bank AG and WGZ Bank AG -- that passed the stress tests, would have failed under the more stringent version of capital with ratios of 4.8 percent, 4.9 percent and 4.6 percent, respectively.
The effect of applying a fully loaded capital definition to the stress-test results varies across nations, Piers Haben, director of oversight at the EBA, said in an interview. While Sweden is “pretty much the same,” Germany and France show some differences, he said.
A futurist and clean energy expert, Toni Seba, has predicted that electric vehicles would destroy the global oil industry after a decade. By 2030, 95% of people won't own private cars which would wipe off the automobile industry, he says.
Boeing and JetBlue Airways have announced they would begin selling a hybrid-electric commuter aircraft by 2022. Planned by start-up Zunum Aero, the small plane would seat up to 12 passengers and reduce travel time and cost of trips under 1,600 km.
Here is another "great" product from Herbalife. Marketed as an ENERGY drink mix. Few people know it contains Gurana seeds which have no active compound giving artificial energy other than caffeine. Afresh also contains additional caffeine
Ingredients of Herbalife Afresh Energy Drink Mix: Maltodextrin, Orange Pekoe Extract, Guarana Seed Extract, Acidity Regulator - 330 and Caffeine Powder.
The Public Provident Fund (PPF) will now offer 7.9% but experts say it is still a good option for investors. Given that consumer inflation is down to 3.65%, the real rate of return of the PPF is a healthy 4.25%.
"This is quite impressive for an option that offers assured returns," says Amol Joshi, Founder, PlanRupee Investment Service. "Investors should continue to take advantage of this long-term tax-free product," he adds.
Even if you compare the PPF rate with the 10-year government bond yield, the scheme is attractive. "The 10-year bond yield is a better benchmark for PPF than consumer inflation," says Manoj Nagpal, CEO, Outlook Asia Capital Currently, the 10-year bond yield is around 6.8% and the PPF at 7.9% makes it for a premium of 110 basis points. "Historically, the average premium has been around 75 bps. So, the PPF investor is today earning a higher real return," says Nagpal. Even so, some investors may be feeling disappointed by the cu…