Group 2 banks’ capitalisation slips in latest EBA results, warns Natixis

The European Banking Authority (EBA) has published the results of its Qantitative Impact Survey (QIS), which analysts at Natixis said pointed to further trouble ahead for so-called Group 2 banks, where capitalisation levels have actually deteriorated, according to the data.

“The data shows an improvement in the solvency ratios and capital shortfalls presented by Group 1 banks (those with the most diversified operations) but a worsening of the capital shortfalls of Group 2 banks,” Natixis said.

“It is important to mention that the Basel Committee’s QIS was carried out on a worldwide scale, whereas the EBA’s is purely European with more countries (Denmark, Portugal, Austria) but excluding Switzerland. In terms of solvency ratios, the 41 banks making up Group 1 recorded a Basel 3 impact of 340bp (vs. 370bp in H1 2011) and the 111 Group 2 banks 340bp (vs. 300bp in H1 2011).

“The capital shortfalls that banks need to cover in order to attain the 7% ratio threshold amount to €199bn (vs. €242bn in H1 2011). In contrast, the situation at Group 2 banks has continued to worsen with a shortfall that has risen to €26bn (from €11bn in H1 2011). In its report, the EBA indicates that earnings in 2011 stood at €82.8bn for Group 1 (vs. €102bn in H2 2010 / H1 2011). However, it is worrying that that no mention is made of earnings capacity in Group 2, which stood at just €17bn in H2 2010 / H1 2011.”

Natixis said that it was positive to see improvements in deleveraging of Group 1 banks, as all European banks worked towards the EBA’s Tier 1 ratio requirement of 9%, which took effect in June 2012.

“Even so, with macroeconomic conditions continuing to worsen, earnings capacity at Group 2 banks is bound to stay on a downtrend and make it hard for some of the banks to comply with a FL CET threshold of 9% by the end of 2013. As for the stocks in our sample, we think that, with the exception of MPS, CASA and DB, all of them should be able to present a fully-loaded ratio of 9% by the end of 2013. Some of them should be in a position to do so as from end-2012 (BNPP, UBS and ISP), whereas others are likely to make it by the skin of their teeth (BBVA, Santander and UBI). The latter will have very little room for manoeuvre if the macroeconomic situation worsens further.”


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