German bank Helaba contests EU stress tests

15th July 2011, Comments 0 comments

The only German bank that would have failed a European Union stress test, Helaba, decided it would not accept a disputed method used for the review and published its own results separately on Friday.

"Twelve German participants passed the stress test," the central bank declared after the European Banking Authority (EBA) released its results in London.

A 13th German bank, the state-owned regional bank Helaba, was not mentioned in in the Bundesbank's statement.

"Helaba decided against the publication of its result by the EBA," the German finance ministry explained in a separate statement.

German officials have voiced support for Helaba in its dispute with the EBA, which centres on the definition of the core capital a bank must hold to be sure of withstanding exceptional shocks to the financial system.

A large part of Helaba's core capital is comprised of what are known as 'silent participations' by the western German state of Hesse, which means it does not have voting rights commensurate with the number of shares it owns.

If these type holdings were included in the calculation of Helaba's core ratios, it would have a core capital ratio of 6.8 percent, comfortably above the test's threshold of 5.0 percent.

Without the 'silent participations,' which are worth 1.92 billion euros ($2.72 billion), Helaba's core capital ratio falls to 3.9 percent.

German central bank vice president Sabine Lautenschlaeger told a press conference in Frankfurt that Helaba had the right to withhold publication of the tests using EBA critera since "the publication of test results was on a voluntary basis."

The executive director of BaFin, the German financial markets watchdog, added that Helaba's absence was "not a disaster," although he allowed it was "regrettable."

Helaba spokesman Wolfgang Kuss told AFP: "Under the EBA conditions the bank failed, that is clear. From our point of view we were successful."

He underscored results published on the bank's website using the standard EBA template but the bank's own calculation.

The line for core equity ratio showed that the "6.8 percent is our figure including silent participations," Kuss said.

Two other regional banks, HSH Nordbank and Nord/LB, just squeaked by meanwhile.

Overall however, "in Germany, no adjustment is necessary because shareholders in German banks that were tested had already taken steps to reinforce their capital, where that was necessary," Finance Minister Wolfgang Schaeuble said.

Other German banks tested included number one Deutsche Bank, Commerzbank and state-owned Hypo Real Estate, which had flunked an easier test last year.

"Undoubtedly the stress tests have been useful in singling out a few particularly weak banks" across the European Union, said Marie Diron, senior economist at Ernst & Young.

"But the adverse scenario considered by the new European Banking Authority in this years tests still did not include the impact of a formal debt default by a European government, which is the single greatest risk facing the European banking sector at present," she added.

"Another shortcoming in the design of the stress tests is that they are performed on a bank-by-bank basis, overlooking the damaging feedback loops that can develop between individual banks, as well as the broader economy, during times of financial stress," Diron said.

© 2011 AFP

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