While China’s official non-manufacturing PMI showed continued strength, the Caixin manufacturing PMI expanded for the first time in 17 months, with output, new orders and buying activity all returning to growth.
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The stress test focused on the performance of the bank if GDP declined by around 7% till 2018. EBA probed 51 lenders in the Eurozone and the EU.
Analysts said this year’s test, the third in the European Union and the first one without a pass or fail mark, was “no panacea”.
According to the Bank of Italy, the Monte dei Paschi di Siena’s Board of Directors has approved a plan to sell its entire portfolio of bad loans and carry out a capital increase of up to 5 billion euros (5.5 billion USA dollars). But the bank’s board on Friday approved a plan to unload some of its nonperforming loans (http://www.marketwatch.com/story/monte-dei-paschi-board-approves-bad-loan-plan-2016-07-29) and raise fresh capital, moves aimed at fending off a government bailout. But, fewer banks are probed and this year there would be no “pass” or “fail”; the markets will do the marking.
“It will be hard to complete such a big capital increase given their track record with past cash calls, and the securitization is a monster operation, a puzzle full of moving pieces that need to fall into place. The execution risk is significant”.
State-backed Royal Bank of Scotland and Next will be the latest companies to update the City on how Britain’s decision to quit the European Union is affecting their businesses this week.
Like Monte dei Paschi, Allied Irish Banks was also below the 5.5 per cent level at 4.31 per cent, but said it has undergone fundamental restructuring and is now sustainably profitable. Other lenders, including Deutsche Bank AG, have faced speculation that they will also need fresh equity to meet stricter regulation and pay fines for past misconduct.
The bank has not produced single whole-year profit since the financial crisis of 2008 and has been paying big chunks of dividends to the UK Treasury.
Eight years since the collapse of Lehman Brothers sparked a global banking meltdown, many of Europe’s banks are still saddled with billions of euros in poorly performing loans, crimping their ability to lend and putting off investors. Overall, the results should be reassuring for the market since the capital position of Europe’s banking system has improved substantially over the last few years.
And market sentiment towards Italy could sour further if a constitutional referendum in the autumn, on which Renzi has wagered his job, does not go the prime minister’s way.
Across Europe however, bank shares largely shrugged off the results of Friday’s tests. The focus in 2016 will, however, be on setting Pillar 2 Guidance to banks to maintain capital that can support the process of fix and lending into the real economy.
De-recognition of the entire bad loan portfolio through its transfer to a securitization vehicle at a price equal to Euro 9.2 billion (or 33% of gross book value) and the subsequent assignment of the junior tranche to BMPS shareholders.
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But it is unclear how much of the senior tranche will fetch the investment grade required for the government guarantee to kick in.
