European banks' stress test findings – live blog

European Banking Authority, the London-based EU regulator for the financial sector, has carried out assessments on 91 banks. Photograph: Pedro Armestre/AFP/ Getty Images1.45pm: Feeling stressed today? You ain't seen nothing yet. It's judgment day for Europe's banks as EU regulator, the EBA, will publish the results of their stress tests at 5pm.

About 10 of the 91 banks are expected to fail the test, which requires them to hold enough capital to protect against a collapse. The benchmark is 5% core tier one capital.

Those expected to fall short include six small Spanish banks, three Greek banks and perhaps some German banks, with Germany's Helaba pulling out of the test earlier this week.
UK banks are expected to pass the test, but that doesn't necessarily mean everything is A-OK - last year Ireland's banks collapsed four months after being given a clean bill of heath. However, the tests have seen been toughened.

The test results will presented as PDFs on the EBA website

2.08pm: Here's a good little Bloomberg video in which Keefe, Bruyette & Woods analyst Jean-Pierre Lambert says he expects nine of the banks to fail. We says the results have already started leaking out and Spanish, Greek and German banks will all fail to make the grade.

2.28pm: Still confused about how it all works? Read Jill Treanor's dummy's guide

2.38pm: If you're wondering why you should care about whether or not some banks you've never heard of go bust or not, Larry Elliott just chipped in to remind us that the collapse of Austrian bank Credit-Anstalt in 1931 led to the Great Depression.

3.06pm: Germany's bankers have complained that the stress tests are going to provide so much detail that they might actually "exacerbate" the sovereign-debt crisis.

"Given the tense situation which already exists in money and capital markets, we believe publishing the results with the present level of detail would exacerbate the sovereign-debt crisis," the ZKA Central Credit Committee, representing Germany's banking associations, wrote in a letter obtained by Bloomberg News.

"To avoid further capital market turmoil, which would fly totally in the face of what the stress test was actually intended to achieve, we believe the level of detail needs to be significantly reduced."

More detail from Bloomberg's Jonathan Weil here

3.20pm:
But Sony Kapoor, MD of Re-Define, an economic think tank, says the unprecedented level of detail contained in the stress tests will be a "real punch" that'll lead to a roller coaster few days.

"The EBA has done everyone a big favour by shining the light of transparency on opaque risks in the European banking system."

"The next few days are likely to deliver a roller coaster ride as the new information contained in the stress tests is digested and everyone waits for EU policy makers to make up their mind on Greece."

"The bank-sovereign links that the stress tests reveal means that the pressure to sort out the Euro crisis and put in place a good bank resolution framework will increase sharply."

3.34pm: German bonds are rising as Spanish and Italian government debt comes under pressure

4.08pm: Further concerns have been raised about whether the stress tests will actually work because they do not consider the risk of countries defaulting on their debt payments.

What the tests won't take into account is the impact of a sovereign default, which Hank Calenti, London-based head of bank credit research at Societe Generale (GLE) SA, said undermines the process.

"The real weakness in the European banking system is going untested," he said.

"Europe's banks are funding Europe's governments, which are keeping the banks afloat," said Bill Blain, strategist at Newedge Group, a London-based brokerage established in 2008. "The stress test results will reinforce just how vulnerable that mutual dependency has become."

Credit traders reckon there's an 87 percent chance of Greece defaulting in the next five years, a more than 60 percent chance of Ireland or Portugal failing to pay their bills and a 23 percent probability of the same happening to Italy, according to CMA prices for credit-default swaps.

That throws the credibility of the stress tests further into doubt, because to be believed they should force banks to hold enough capital to survive an event "with a five to 10 percent probability of happening," Ian Smillie, a London-based Royal Bank of Scotland Group Plc analyst, said in a note. Basing the tests on current government bond prices "would lead to widescale recapitalization" of banks, he said.

4.11pm: Reuters is saying Spain's Banco Pastor and Catalunya Caixa will fail. Interestingly, just yesterday it said it'd be fine

4.15pm: Reuters also says Austria's Volksbanken has failed although is taking action to shore up its balance sheet by selling its eastern European
arm VBI

4.30pm: We've got a sweepstake going in the office;
I've gone for 10 banking failures
Our banking editor Jill Treanor has gone for 13
Economics editor Larry Elliott's plumped for 17
Simon Goodley reckons there'll be 15
Stay tuned to find out, and make your own guess below. The closest entry by 16:55 wins this top prize

4.35pm: The FTSE closed flat, France's CAC is down 0.6% , Spain's IBEX is down 1.1% Italy's FTSE MIB is down 1%. Just 25 minutes to go.

4.46pm:

The key number is 15. If the number is higher than 15
banks, then that would create a disturbance in euro/dollar

Boris Schlossberg, director of FX research at GFT in New York.

The euro has slipped 0.1% to $1.41243 so far today, which takes this week's fall against the dollar to 0.7%. Earlier this week it hit a four-month low of $1.38376

4.50pm:

Ian Traynor in Brussels

The chancellor George Osborne is understood to have told EU finance ministers this week that for the stress tests to be credible, more EU banks than expected would need to fail. He was referring specifically to the Greek banking sector.
Such a scenario was contested by the Greek Finance Minister, Evangelos Venizelos, who voiced total confidence in the state of Greek banks.
"There is absolutely no problem with the Greek banking system. The Greek banking system is absolutely covered and absolutely secured within the euro-system," he told parliament in Athens.

4.52pm: Nine minutes to go. EBA has cleared its website to only cover the stress test result. Excited.

4.55pm: Helaba, the German bank that pulled out of the stress tests the other day, has put out a statement explaining why it got in a hissy fit.

5.01pm: EIGHT banks failed

5.02pm: Failed banks need to raised eu2.5bn in capital

5.02pm: 5 Spanish
1 Greek
2 Austrian

5.03pm: The EBA says the core tier ratio on March 31 was 11.2%

5.06pm: The full report and press release is up here

5.10pm: 7 Spanish, 2 German, 2 Greek, 2 Portuguese barely passed the test. The EBA says 16 of 90 banks had core capital of 5% to 6% and will have to take action to improve capital buffers, says @ZeroHedge

5.13pm: The winner of the sweepstake is Masistios who was right on the button with 8. Email me your address please Rupert.Neate@Guardian.co.uk

5.17pm: The first instant reax comes from Nils Melngailis, MD of Alvarez & Marsal,

The stress tests haven't accurately compared the health of banks as they have different ways of assessing losses on their loan portfolios. The one thing that is consistent is the alarming lack of planning in vulnerable markets as to how to deal with future bank failures.

The stress tests have confirmed the identity of the weaker players, but they will have no bite unless followed up by restructuring and consolidation of the financial landscape. The great challenge now is putting in place the right framework to not just avoid another crisis, but to enable the banking sector to thrive.

5.19pm: The German's are not happy. "The European bank stress tests this year have done a poor job of building confidence," said Heinrich Haasis, president of the German Savings Banks Association. "The task now is to ensure that no additional uncertainty affects the markets."

5.21pm:

With only eight banks failing and the requirement for these banks to raise 2.5 billion in capital, it wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised.
That being said, I don't think people really expected that outcome. But the solution to the wider sovereign/bank malaise in Europe needs to go beyond simply pumping more capital into the continent's banks. That's the underlying message, the solution's gone beyond that.

Michael Symonds, Credit Analyst, Daiwa Capital Markets

5.24pm: FT Alphaville is updating the capital shortfalls as we speak

Austria
Volksbanken

Greece
Atebank
Eurobank EFG (€58m)

Spain
CAM (€947m)
Catalunya Caixa (€75m)
Unnim (€86m)
Banco Pastor
Caja 3 (€140m)

Jill Treanor Photograph: Linda Nylind for the Guardian 5.26pm: Instant reax from Jill Treanor

The total number of fails at eight - or nine if the German bank
Helaba is included - will disappoint anyone looking for bigger headline number than last year's when seven banks failed. But the EBA has allowed banks to count capital raising they did between the start of 2011 and April into the pass/fail scenario. Without these capital raisings - which totaled €50bn during the period - some 20 banks would have failed. Interestingly, the regulator spells out just how important government banking for the industry still is, some three years after the major bailouts. Some 18 banks would have failed
without being propped up by their governments, with a short fall of
€50bn.

5.28pm: The British Bankers' Association is quick out of the blocks to praise its members

The UK's banks took early action to rebuild their capital base following the global financial crisis, and are recognised by international authorities for their work to strengthen their capital positions.
Today's report from the European Banking Authority provides further information on strengths and weaknesses in the European banking system. This is a significant piece of work, which should now be subjected to careful and considered analysis.

5.30pm: Before you head off to the pub the EBA's press conference is getting started, two minutes early

5.32pm: Actually you can go to the pub and watch it on your iPhone or BlackBerry, how very modern.

Watch the conference on your mobile.
Blackberry/Android
Iphone

5.36pm: The FSA says

We welcome the publication of the EBA stress tests which are an important part of ensuring market confidence and promoting market discipline. The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test, reflecting the work we and the banks have undertaken to improve resilience since the crisis

5.40pm: Andrea Enria, chairman of the EBA, admits there has been "controversy" over its decision not to take into account the risk of sovereign debt.

"Further deterioration in the sovereign debt crisis might raise serious challenges," he says.

5.41pm: Enria says banks must cut dividend payments to ensure they have enough core tier one capital

5.45pm: "Obviously the crisis is far from over," says Jonathan Faull, EU commission director-general for single market

5.47pm: Enria says he "regrets very much" that Helaba pulled out the stress test, but says there will be no sanctions against it.

Ian Traynor, Europe Editor 5.51pm:

The Irish, the jokers in last year's pack, are sounding quietly relieved and self-assured:

The Irish Finance Minister, Michael Noonan, said

"I am pleased to note that the three Irish institutions that
participated in the stress test – Allied Irish Banks, Bank of Ireland
and Irish Life and Permanent – have all passed on the basis of the
actions underway to increase their capital position announced in my
Statement on Banking of 31 March last. ...No additional capital
requirement has been identified. The institutions will continue with
the deleveraging and restructuring work."

5.56pm: Masistois, winner of the sweepstake, as been in touch:

So pleased to have won. I'd like to thank my family, my agent, Mrs Masistios, who's supported me throughout the live blog.... etc.

Congrats from everyone here (and I humbly add that I was closest in the office)

5.57pm: This by no means the last stress test, there will be more, says Faull

5.59pm: Enria says almost all the banks complained about the level of disclosure the EBA was asking for. "It was an unprecedented amount of information".

"The public expects regulations to shine a light, where a light was not shone before," says Faull. "That can only be positive."

6.02pm: Ian Traynor has more reaction from across Europe.
Belgium, another troublemaker in the european debt crisis, is also sounding rather pleased that its two banks in the test, KBC and Dexia, came through unscathed.

Didier Reynders, deputy prime minister and finance minister in the caretaker government.

Resolute action to address investor perceptions of sustained weakness in the EU banking sector is an important part of the comprehensive response to the crisis
I welcome the enhanced transparency in the publication of these results and in the disclosure of the sovereign exposures of participating banking groups. The results indicate that both banks are adequately capitalised, with Core Tier 1 ratios well above the 5%
benchmark under the stress scenario.

6.15pm: That's it from the press conference, but the EBA has now published individual results for each of the banks

6.17pm: Herman Van Rompuy, President of the European Council, has just tweeted

I have decided to convene a meeting of the Euro area Heads of State or Government on Thursday, 21 July, at 12.00

Ian Traynor, Europe Editor 6.20pm:

And the European Central Bank in Frankfurt, the authority at the heart of the euro crisis and at loggerheads with the EU's preeminent political power, Germany, is warning EU governments not to backslide on pledges they delivered earlier this week in Brussels.
"The ECB welcomes the EBA recommendations to promptly remedy the
capital shortfall of the banks that do not meet the threshold ratio of 5% core Tier 1 capital and to strengthen the capital position of those banks that are above but
close to the threshold. The ECB encourages the governments to fully implement the commitment they undertook at the meeting on 12 July to ensure that the necessary remedial actions are taken," said a statement from Frankfurt.

6.23pm: Another good post on Alphaville (replete with some helpful graphs).

Exactly 20 banks would have dipped below the 5 per cent Core Tier 1 capital pass rate had it not been for capital raising undertaken between January and April of this year, according to Reuters. But look closer because "mitigation" actions by the banks actually extend beyond capital raisings already done.

6.32pm: Ian Traynor, our man in Brussels, is excited about Van Rompuy shindig next week.

Next Thursday it is then, a rather fateful date for the euro, with Van Rompuy calling an emergency summit on the debt crisis of eurozone heads of government. He has been pushing for this all week, with strong support from President Sarkozy. Chancellor Angela Merkel resisted, as ever in the past 18 months, playing for time.
This is only the third or maybe the fourth eurozone summit ever. But it has never been more warranted. This morning's Economist cover correctly has the euro about to teeter over the edge of the cliff. A lot rides on a summit. The leaders need to have a deal sealed beforehand. That was why Merkel was resisting. The main issue, tho not yet clear and not the only bone of contention, is the level of private creditor involvement i.e. losses in a new Greek bailout - Germany for the maximum, the ECB set against. Might not be too much of an
exaggeration to suggest that next Thursday and the fallout will decide the fate of the euro experiment.

6.37pm: That's it folks. Thanks for following the blog, and congratulations again to Masistios.

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