Stress tests to show extent of problems at Italy's oldest bank

AFP - [email protected]
Stress tests to show extent of problems at Italy's oldest bank

Stress test results for Europe's top banks come out Friday and all eyes will be on Italy's embattled Banca Monte dei Paschi di Siena (BMPS) - the world's oldest bank.


Scandal-hit German lender Deutsche Bank will also be one to watch when the London-based European Banking Authority releases its results at 8PM GMT.
The tests for 51 banks from 15 European countries, representing 70 percent of Europe's banking assets, will be a key measure of the sector's stability.
The publication will be closely scrutinized by investors and is timed for after the closure of financial markets in Europe as well as the US because the banks concerned have interests there too.
 "A number of banks will likely show a capital shortfall in the adverse scenario, including Monte Paschi," said Lorenzo Codogno, an analyst at LC Macro Advisors.
"The pressure on banks to announce plans to respond to the stress test exercise will be high," he said.
The EBA published stress test results in 2011 and 2014 to measure the potential effect of an economic shock - but this time it will not say whether the institution concerned has passed or failed.
"In 2016, no pass fail threshold has been included as the objective is to use the stress test as a supervisory tool," the authority said.
In 2014, the banks had to show a minimum 5.5-percent core capital ratio - a measure of financial strength - in the worst-case scenario.
Twenty-four banks failed and had to boost capital.
This time, the EBA will publish data on capital and assets held by banks, which will then be passed on for further action from supervisory authorities - the European Central Bank in the case of eurozone banks and national authorities for the others.

Pressure on banks

The publication should also allow investors to make up their own minds on banks' solidity, including for some lenders that have seen their stock market capitalization collapse in recent months.
In the firing line are troubled Italian banks, whose share prices have fallen by about 55 percent over a 12-month period.
Banca Monte dei Paschi di Siena (BMPS), whose stock has fallen 84 percent over the same period, is seen as particularly vulnerable.
BMPS failed the 2014 stress tests and had to carry out two capital increases for a total of €8 billion).
A new plan is currently being studied to find a more definitive solution for BMPS.
The plan would see a writedown of around €10 billion in bad loans followed by a recapitalization of €5 billion and is due to be examined by the European Central Bank on Thursday, Italian financial daily Il Sole 24 Ore reported.
The newspaper said the EBA results published on Friday would reveal the bank's continued fragility while the four other Italian banks being studied would apparently come out well - even though the country's financial system is creaking under the weight of a total of €360 billion in bad loans.
Another focus will be top German lender Deutsche Bank.
Following a series of scandals, difficulties for its investment bank in a low interest rate environment and the impact of a tough restructuring plan - investors are wary about the banking giant.
It does, however, retain solid core capital ratios and - thanks to the support of the ECB - it should not lack liquidity in the short-term.
Concern about the bank's financial status are "unjustified", said Deutsche Bank chief executive John Cryan as he presented its second quarter results earlier this week.
Investors will however be looking for more detail from the EBA release.


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