Market Talk Deutsche Post Bank Has Failed The Stress Test

Tyler Durden's picture

Just a rumor for now. On the other hand, it conforms precisely to Credit Suisse's earlier announcement that  Post Bank, in addition to Italian Monte dei Paschi di Siena and Greek ATE, Piraeus, Helenic Postbank NBG would fail the Stress tests. Below are the key observations from a report by CS' Daniel Davies, in which he pointed out that Post Bank would need €1.4 billion in capital to shore up to a 6% Tier 1 Capital.

From Credit Suisse

Having established the capital resources of the bailout sector, we move on to estimate the demands that might be placed on this capacity by various stress scenarios. In so far as the spreadsheet exercises are concerned, these largely repeat the work we carried out in “Euro Zone Stress Tests”, June 18, which we still regard as valid. For purposes of assessing the level of bailout capital needed, we are assuming that the threshold is 6% headline Tier One capital – the US stress test was at a level of 4%, but the stress test sample in the US tended to have less non-equity Tier One. We are using Tier One rather than Core Tier One (in a departure from our normally strongly held view that Core Tier One is the valid metric) because we are aiming to analyse what we think will happen rather than what we think ought to happen – headline Tier One is the measure which currently has regulatory and legal validity. In any case, as we said on p4, the  important thing here is not for the stress test to establish a realistic worst case measure of capital strength (something that is largely impossible to do anyway, in our opinion) – it is to trigger and test the recapitalisation mechanism.

Core scenarios for our coverage universe

Below, we present the two scenarios we calculated for “Euro zone stress test”, June 18, with a few minor calibration changes, and adjusted to use 2011e balance sheets as the basis for analysis. We reiterate that across our coverage universe, we see little chance of any of the large non-Greek banks failing a stress test; Greek banks would only fail in the event of a severe haircut on their sovereign debt holdings. To reiterate our methodological assumptions:

Economic downturn scenario

For the economic downturn assumption, we have taken the 2009H1
NPL formation rate as reflecting what each specific bank would see in a
severe recession (this seems a more attractive and bank-specific
approach than imposing uniform loss ratios), and projected this forward
for eight quarters starting Q1 10. We then assume that the new NPLs need
to be provided for at 60% coverage ratio (50% in Italy to reflect a
national difference in charge-off policies) and calculate the effect on
the capital base relative to our base case forecasts. In a small number
of cases, this gives a higher number for capital, where we had already
incorporated a more severe outcome into our earnings forecasts (mainly
in Spain). This methodology is the same as in our note of June 18,
applied to headline Tier One rather than core; as in that note, most
banks pass comfortably; we do not find any recapitalisation requirement
in our coverage universe on the basis of this stress test alone.

Sovereign debt scenario

For the sovereign debt stress test assumption, we have looked for an assumption which might be considered credible by the markets, but which might also be considered politically possible by the regulators. Our final conclusion was that the only assumption which fit both criteria was a “comprehensive mark to market approach” – in effect, rather than imposing quantitative haircuts (and thus implicitly inviting the banks to consider an actual debt restructuring), we assume that the regulators will require all sovereign debt portfolios (whether held for trading, available-for-sale or held-to-maturity) to be immediately marked to the current CDS curve, minus 3%. This would correspond to a case where liquidity considerations required a bank to liquidate its entire government debt holdings, at market price less a discount for forced sale, with the impact falling on regulatory capital irrespective of whether the underlying assets were money good. When applied to our coverage universe, this scenario implies a haircut on AfS and HTM portfolios (trading losses already being incorporated in our base case forecasts) equal to the greater of the actual loss YTD or zero (as we do not want to give French and German banks credit for appreciation of their domestic bond portfolios due to falling interest rates).

We have assumed that for all banks in our sample, bond portfolios are 70% domestic and 30% foreign, assuming that “safe” countries saw losses of a flat 10% on foreign bonds and “higher risk” countries only had the 3% liquidation discount.

In this case, no bank in our coverage universe ends up requiring recapitalisation to meet a 6% headline Tier One hurdle rate, except ATE and Piraeus. The quoted bank sector has small enough sovereign exposure and large enough Tier One capital to withstand significant stresses.

Combined scenario

Finally, it is necessary to combine the two scenarios, as it is quite likely that there could be banks which did not require recapitalisation in either of the two stress cases considered as individual events, but which could be pushed below 6% headline Tier One if they happened simultaneously. This is used in “Scenario 3” listed below.

Full CS report:


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Renfield's picture

How the hell does ANY bank fail a rigged test that doesn't take into account chances of default?????

Bullshit. SON o' bullshit.

I don't believe it. I think this rumour is being spread to cool the EUR and I bet it started somewhere in the vicinity of Soros.

IrrationalMan's picture

wasn't this a pass/pass stress test anyway?

Renfield's picture

Yesh. That's why it had to be floated as a rumour. Because the actual results will be gold stars and participation trophies for the whole class.

23 July is a long way away in the world of shorts.

carbonmutant's picture

I agree with Renfield, Bullshit.

unwashedmass's picture


clearly the europeans didn't get Timmy's drift...NO ONE FAILS. NOT A ONE. how many ways and times do we have to tell them?

Ragnarok's picture

From Bloom:

U.S. Banks Recruit Investors to Kill FASB Fair-Value Proposal

jkruffin's picture

Thanks for posting this,  I just wrote my letter to the director, asking them to not fall prey to the lobbying and force these banks to deal with these toxic assets instead of allowing them to mark them to whatever price they want to cook their books.  Enron revisited.

Rainman's picture

Double thanks. Check out the absurdity of those fair to carry values. Hell, the proposed MTM change wouldn't even take effect until 2013 . The ABA banksters, therefore, could not survive fair valuation even that far out....!!

A force for truth is at war with the force for ongoing lies. It must be a fucked up time to be an "independent", SEC-endorsed auditor for the banksters. Imagine the stench coming off those balance sheets.

ratava's picture

was it denied yet? that way we would know it is the truth.

SheepDog-One's picture

WTF this is like failing time after time at bat at T-Ball.... Swing and another clean MISS! Cant get any more rigged and still all fail? Hmmm obviously time for another 3% melt-up rally.

BTW didnt OUR stress tests factor in 7% unemployment or something like that? Guess thats no longer relevant.

RobotTrader's picture

Must be the reason gold is getting sold and everyone is now piling back into bonds.


Running on Empty's picture

I've noticed that "Gold Bitchez" have been quiet lately.

Horatio Beanblower's picture

The ignominy of failing an intentionally rigged stress test must be hard for some people to bear. 

tom's picture

I bet there are quite a few Eurozone banks that will collapse if not everything improves all at once soon, which is how the EU defines "stress".

Tartarus's picture

Whatever happens the Greek banks are likely to fail the most important stress test of all, economic reality.

doomandbloom's picture

how bad should a bank be to fail a rigged stress test?

Gully Foyle's picture

I read Stress test as some hybrid bank Triathalon where participants perferm repititious tasks until they drop. I picture whole rows of people speed stamping loan applications with little timers on their desks.

Temporalist's picture

Banks in the U.S. are still failing and that is before the CRE crash which has been postponed by lenders or transfered in the Loss Share Program.

Some 86 banks I think have failed already in the U.S. for 2010 with the projected year end amount to be 178 up from the 130 in 2009..



jkruffin's picture

No wonder Germany didn't want stress tests released to public, rigged or not, they still fail.  Greece is just an embarrassment. Spain of course,  well, we know that is a lie.

carbonmutant's picture

The ECB can't afford a propaganda failure...

Ahmeexnal's picture

Those tests are as rigged as the world cup matches.
Still, the masses cheer for gladiator blood.
Time to give the thumbs down signal for them banks!

herry's picture

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