Banca Monte dei Paschi di Siena, which was founded in 1472, is one of a number of banks that fared worst in stress tests devised by the EU.
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“Investors will want to see these big banks manage to hike their capital ratios to a point where after an adverse test they’re closer to 10pc level”, said Julien Jarmoszko at S&P Global Intelligence.
In addition, investors are anxious about its capital position after last week’s European Union bank stress tests.
The Italian bank confirmed less than an hour before the results that it had finalised a plan to sell off its entire portfolio of non-performing loans and had assembled a consortium of banks to back a €5 billion (RM22.5 billion) capital increase. That signals a greater effort is required by the lender to strengthen itself and more work is needed to its overhauling attempt, which was launched previous year.
Goldman Sachs analyst Jernej Omahen said Barclays, Deutsche and Societe Generale all performed badly under his assessment, and as a result supervisors could be encouraging them to continue to build capital.
A bank’s capital ratio measures the funds it has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis. The results of the EBA test can not be used to infer the results of that test, which will be decided and published by the Bank of England in 2016 Q4.
RBS, which taxpayers own 73% of, fared comparatively poorly in a survey by the European Banking Authority which looked at how much capital would be used up in adverse economic conditions.
Ultimately, what the tests are trying to show is whether the banks in question are financially healthy enough to stay up and running should the foreseeable worst-case scenario happen. Other banks with relatively weak levels were Spain’s Banco Popular, Austria’s Raiffeisen and Bank of Ireland.
Under the EBA’s “adverse” economic conditions scenario, Deutsche Bank would have a CET1 ratio of 7.8 per cent at the end of 2018, while Commerzbank would have an CET1 ratio of 7.4.
With the release of the data, the Irish banks had already started making attempts to calm the stock markets after the stress tests placed the country’s banks among the worst position. Adding to the worries, the second-quarter earnings showed profits fell sharply to 987 million euros ($1095 million) from 2.7 billion euros in the first half of the year. It said the EBA tests had not included the €2.5 billion share issue it completed in May to clean up toxic retail assets.
“The EBA stress test results demonstrate our continued progress towards transforming the balance sheet to being safe and sustainable”, said Ewen Stevenson, RBS chief financial officer.
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Deutsche Bank has boosted its capital by nearly 22 billion euros since the financial crisis and it now holds about four times as much capital against a risky asset than it did 10 years ago. For the first time, the European Union test consisted of the effect of conduct threats such as fines and settlements.
