Several days ago we were confused why, out of the blue, a €1 billion loan BWIC appeared that was dumping German non-performing loans. After all, the whole point of the European "recovery" fable to date has been to deflect all the attention from the "pristine" German banks, up to an including world-record derivatives juggernaut Deutsche Bank, and to focus on Greece and other insolvent peripheral European nation. Earlier today, German Handelsblatt provided an answer, when it reported that "four German banks are on the brink", i.e., four banks of which three are known, HSH Nordbank, IKB and MunchenerHyp, will likely fail the ECB's stress test whose results are due to be announced next Friday.
Keep in mind that this is a significant fraction of the 24 German banks that are undergoing the ECB's Stress farce test. So one wonders: if one in six German banks is so unsafe even the ECB (which kept Cypriot banks going well past their insolvency) will give them a black stamp (because in Europe failing a bank stress test is first of all impossible since both Bankia and Dexia passed theirs with flying cololrs, but more importantly a death sentence), what does that leave for the rest of Europe's banks, all of which are in far more dire shape than sleepy Germany?
In any case, here is Handlesblatt's warning:
The European Central Bank will give the results of its so-called “stress tests” to the banks on October 24. Shortly thereafter, at a Sunday afternoon press conference in Frankfurt, it will inform the public about which of the banks passed the months-long checkup into the health of their balance sheets. The test is designed to give the ECB a clean slate when it takes over the role of supervising Europe’s largest banks on November 4.
While Germany’s largest banks, including Commerzbank, are expected to pass the test, there are still four smaller banks putting in extra hours in hopes of passing ECB muster, according to information received by Handelsblatt.
“In part, data and justifications need to be sent over, in order to convince the regulators,” said one insider, who declined to be named.
Sources in the financial industry have named the state-backed regional lender HSH Nordbank, as well as IKB, a Düsseldorf-based bank supporting small and mid-sized businesses. The southern regional bank MünchenerHyp is also on the edge. The fourth bank is still unknown. The sources say it is possible that, after the last consultations, only two are really at risk of failing the stress test.
Commerzbank, Germany’s second-largest bank that is still 17-percent owned by the German government, seems to have cleared the hurdles. Deutsche Bank is also not being treated as a problem bank. [ZH: Kinda odd considering this] The largest German bank’s future legal costs are not being considered in the stress test and its capital increase last spring has a positive impact on the stress test rating.
Observers also give the all-clear to the publicly listed Aareal Bank and the cooperative financial institutions DZ Bank and WGZ Bank. Spokespeople for the banks would not comment before the results are released. When it comes to Germany’s state savings banks, BayernLB considers itself to be not at risk. CEO Johannes-Jörg Riegler said on Thursday: “You can assume that we are very, very solidly equipped and have considerable buffers to cushion some things. Do not worry.”
But the situation in the very north of the country is more dramatic, where HSH Nordbank is struggling to convince regulators.
Following an increased guarantee worth billions of euros on the part of the public owners Hamburg and Schleswig-Holstein, the state bank is so well financially padded that it could financially cope with the tougher guidelines from the ECB on the assessment of ship loans. According to the guidelines of the central bank, a lump reduction of 12 percent based on the calculated value of the ship will be levied, which naturally has an impact with ship lending volume of €20 billion.
Oh well: more bank failures means more central bank bailouts. All of which is, what else: bullish.