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We anticipate the market will react positively to the results from the ECB & EBA Comprehensive Assessment and reduce the tail risk that has concerned investors. We provide a summary of the key results and list the banks that have performed better or worse relative to market expectations. For these names, we expect a strong impact in the subordinated space.
• Under the adverse scenario (5.5% CET1 hurdle), 24 banks failed leading to a capital shortfall of €24.6bn. However, including additional capital measures undertaken in 2014, the number of banks with a shortfall reduces to 14 with capital needs of €9.5bn. If the Greek restructuring plans are considered, the shortfall reduces to €6.84bn.The banks that failed were largely anticipated with a full list below.
• Banks that fail the stress test have 2 weeks to submit capital plans to the ECB. The shortfall under the baseline scenario must be implemented within 6 months, the adverse scenario within 9 months.
• Monte dei Paschi had the largest capital shortfall at €2.11bn including all capital raises and restructuring plans. Monte has hired UBS and Citigroup to explore options to boost capital.
• Banca Carige had a shortfall of €0.81bn and has announced a capital increase of €500m and asset disposals to fill the gap.
• Positive market impact: Commerzbank, Deutsche Bank, Nord LB, HSH Nordbank, Banco BPI, Bankia and RBS.
• Negative market impact: DZ Bank, AIB, Lloyds and Monte.
• Whilst Ertse & Raiffeisen did better than market expectations, the deterioration in Russia & Ukraine was not fully factored in and continues to be a negative catalyst.
• Lloyds performed poorly under the adverse scenario with a CET1 of 6.2%, compared to RBS of 6.7%.
• The strong result from Banco BPI will provide a positive read across for Novo Banco given La Caixa (44% shareholder of BPI) has stated that they will review the possibility of acquiring Novo Banco.
