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.
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: