Saturday April 18, 2015 Search
Weather | Athens
14o C
09o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
ECB meets bankers before earnings signal unfinished business

By Jeff Black, Shane Strowmatt & Sonia Sirletti

Europe’s lenders are running out of time to get their books in order before the European Central Bank passes judgment on them.

As executives from 128 banks meet in Frankfurt this week with some of the officials examining them, managers of the ECB’s Comprehensive Assessment are working out a mid-October date for final disclosure and guiding lenders through a conclusive stress test. Meanwhile institutions including Erste Group Bank AG (EBS) are stepping up efforts to take the sting out of the outcome by acknowledging losses and raising fresh capital.

Aiming to create a clean sheet for the region’s wounded lenders and foster credit to the economy, the ECB is urging them not to wait until the results of its health check are out. As its Asset Quality Review comes to an end this month, a round of quarterly earnings should boost the 104 billion euros ($141 billion) worth of measures cited by the ECB as already taken by banks to strengthen balance sheets.

“The comprehensive assessment is as much about the process as the results,” said Bridget Gandy, managing director for financial institutions at Fitch Ratings Ltd. in London. “It shouldn’t be that you have to wave a stick at the banks and tell them to get the capital in after the results, they should be -- and largely are -- doing whatever they can now.”

Ravaged economies

Last week, Erste, the Austrian bank earning most of its income in eastern Europe, said it will post a loss this year of up to 1.6 billion euros as bad-loan provisions rise 40 percent more than forecast. Erste Chief Executive Officer Andreas Treichl said the measures will help the bank pass the ECB’s assessment.

Exposures to economies ravaged by the European debt crisis such as Italy and Spain will force other lenders to set aside cash against soured loans too, according to Cyril Meilland, an analyst at Kepler Cheuvreux.

The second quarter is likely to be “a high mark for provisions,” he said. “We definitely do expect most banks will be booking either gradually larger provisions in connection with the AQR and stress tests, or in response to requirements from the ECB and other supervisors.”

A further challenge to European bank balance sheets is coming from fines and litigation costs. Commerzbank AG (CBK), Germany’s second-largest lender, will probably be the next institution to resolve alleged U.S. sanctions violations, a person with knowledge of the matter said. The probe is part of a U.S. crackdown on financial institutions for handling funds linked to blacklisted nations that led to a record $8.97 billion fine against BNP Paribas SA. (BNP)

Brussels meeting

Second-quarter earnings from euro-zone banks will intensify in the final week of July, as Germany’s largest lender, Deutsche Bank AG (DBK), reports on July 29 followed by BNP Paribas SA and Banco Santander SA (SAN) both on July 31.

Chief financial and risk officers will gather for a three-day series of meetings with ECB officials running the comprehensive assessment, beginning Tuesday. They can expect a run-through of how the central bank plans to disclose the results in October, a process that will include divulging the ECB’s assessment of capital levels according to lenders’ balance sheets as of Dec. 31, 2013.

The ECB’s assessment on any shortfalls that emerge will also include an appraisal of what the bank in question has done to improve its position since the beginning of the year. Banks need to show they hold capital worth 8 percent of risk-weighted assets for the asset review and 5.5 percent for the adverse scenario of the stress test.

Technical failures

So-called technical failures, where a bank fails the test according to its end-2013 balance sheet but passes on the basis of what it has done since then, are a likely outcome, according to Fitch’s Gandy.

“It would be dangerous for financial stability if a lot of institutions which showed up in the results as failures hadn’t done anything since the end of 2013, the date the tests are based on,” she said. “The half-year results are going to be very interesting.”

To give time for the market to digest the information before the central bank takes over supervision on Nov. 4, officials have penciled in a date of Friday, Oct. 17, to disclose the outcome publicly, according to two people familiar with the discussions. That date could still change.

The ECB has not confirmed a date and will do closer to the time, a spokeswoman said in a statement, adding that officials have pointed to publication in the second half of October.

Uncertainty persists

To get there, the ECB still has to process what could be the most technically demanding part of the Comprehensive Assessment. Data gleaned from the AQR -- which involves 6,000 auditors sifting through about 160,000 credit files across the euro area -- must be combined with banks’ estimates of losses under the adverse scenario of the stress test, all without revealing too much about the ECB’s appraisal of a lender’s balance sheet before disclosure day.

While such uncertainty persists for banks, they might as well seize the initiative and put more money aside early for unrealized losses, said Andreas Plaesier, an analyst at M.M. Warburg in Hamburg.

“If you revalue things now and increase capital early, it’s more positive than waiting until later, when everything’s public and you have to react,” he said. “I could also imagine that capital increases remain a topic before the stress test results come out.” [Bloomberg]

ekathimerini.com , Tuesday Jul 8, 2014 (13:03)  
ECB examines possible Greek IOU currency in case of default, sources say
New bank programs to contain bad loans
Industrialists warn on mine intransigence
Early Easter boosts job hirings
Krugman advises against ‘nightmare’ euro exit
Economist and New York Times columnist Paul Krugman spoke at the Athens Concert Hall on Friday. Although Krugman was critical of the way that the eurozone has handled Greece’s crisis, he adv...
Brussels Group due to meet in wake of Obama’s call for Greek reforms
Greece and its lenders are due to get back down to business on Saturday with a meeting of the Brussels Group that Athens hopes will result in an interim agreement by the end of the month at ...
Inside News
BASKETBALL
Triumph for Olympiakos at Barcelona
Olympiakos produced its best away performance so far this season to defeat host Barcelona 76-63 on Friday and snatch the home advantage in the Euroleague play-offs. The Reds have now tied th...
BASKETBALL
Another heavy loss for improved Panathinaikos in Moscow
Panathinaikos raised its performance since Tuesday but still suffered a 20-point loss at CSKA Moscow on Thursday to find itself trailing 2-0 after Game 2 of the Euroleague play-offs. Having ...
Inside Sports
COMMENTARY
The Armenian genocide and Hagia Sophia
Pope Francis’s declaration that the slaughter of Armenians by Ottoman forces 100 years ago was “the first genocide of the 20th century” will hasten the conversion of the Hagia Sophia museum ...
EDITORIAL
Crime against education
The government’s plans for Greek state universities are nothing short of criminal. It took decades for us to mature enough as a society and for Parliament to accept, with an unprecedented ma...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Triumph for Olympiakos at Barcelona
2. Krugman advises against ‘nightmare’ euro exit
3. Brussels Group due to meet in wake of Obama’s call for Greek reforms
4. Crackdown on uni sit-in deepens rifts in SYRIZA
5. Greece, Cyprus hope for progress in peace talks
6. Komotini mosque damaged by fire, arson suspected
more news
Today
This Week
1. Quarantine for Greek bank subsidiaries in neighboring countries
2. Putting off payments led to Q1 budget primary surplus
3. Obama calls for flexibility in Greek reform talks in brief exchange with Varoufakis
4. Greek finance minister says cannot sign existing loan deal
5. Greece enters twilight zone as visions of euro exit take shape
6. Fourteen face charges after police enter Athens University grounds, ending sit-in
Today
This Week
1. Quarantine for Greek bank subsidiaries in neighboring countries
2. Greece and lenders head back to technical talks
3. Contraband is big business in Greece
4. FYROM push expected at EU meeting
5. Islands of eastern Aegean struggle as migrant influx triples
6. Greek finance ministry hits back at German newspaper report
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.