German bank Helaba says it has failed EU stress test
Regional German bank Helaba said Wednesday it had failed EU bank stress tests because changes to a stake owned by the western state of Hesse was not dealt with in time.
The problem arose because of the nature of investment known as silent participation, where an investor buys a stake in a bank but does not have voting rights, it said.
Hesse, which owns 10 percent of Helaba, said in April that it would adapt a so-called silent participation worth 1.92 billion euros ($2.7 billion) so the bank would meet equity capital criteria.
German officials have provided substantial aid to some regional banks in the form of silent participations, under which regional authorities do not hold voting rights commensurate with the amounts invested.
But the sums provided, also known as hybrid capital, did not qualify as core capital under terms of the stress tests, which are being coordinated by the sector's regulator, the European Banking Authority (EBA).
Results of tests on 91 banks representing 65 percent of the EU banking sector are to be published on Friday.
A Helaba statement Wednesday said Hesse had notified the EBA in late April of the changes it planned to make.
"They confirmed that the measures taken would suffice to pass the tests," the statement added.
But in late June, the EBA changed its mind and asked for a more substantial document, before saying in July that it no longer had enough time to carry out a thorough study of the new document, the bank said.
If the changes to Hesse's silent participation had been taken into account, Helaba would have easily passed the tests, it added.
Banks must demonstrate that they have a minimum of five percent of core capital available to resist unexpected shocks.
Helaba was the first German bank to announce the results of its test.
The EBA says the results will include "clear disclosure" of credit and sovereign exposures, a key issue in light of the eurozone's debt crisis.
EU finance ministers said Tuesday that governments would provide help to any banks that failed the latest round of tests designed to determine if they can withstand fresh financial shocks.
The tests are designed to combat criticism over last year's banking sector review which found that just seven out of the 91 European banks inspected were vulnerable to economic stress.
Of the 91 tested in 2010, five in Spain, one in Germany and one in Greece failed to pass but those cleared included Irish banks that subsequently collapsed, requiring Dublin to provide billions more in bailout funds.
© 2011 AFP