- CEBS / Bank of Spain publish the stress test results "On July 23, the CEBS published the results of the stress tests run on 27 Spanish credit institutions (90% of the market). This report analyzes in detail the assumptions used in and conclusions drawn from the Spanish banks and saving banks’ tests."
- Mixed feelings on the assumptions; disappointed by the results "We regard the impairment assumptions (both on sovereign and the different credit buckets) as sufficiently severe and consistent. We are, however, less convinced by and have lower visibility on what is included in and how the regulator arrived at some of its forecasts on PPP, capital gains and other “impairment buffers”. This is particularly relevant as under a marginally tougher set of assumptions in this area, a larger number of institutions would have failed the test (nine instead of five, with another six below 6.5% Tier 1), although admittedly the incremental amount of capital is limited to E3.5bn. The system’s total capital shortfall under the “adverse
+ sovereign shock” scenario stands at E2bn. Note that this figure is incremental to the E14.3bn already injected, making a combined total cE16.3bn. This falls below our estimate of E35bn, the IMF’s E22bn and similar figures from other market participants. Out of the 27 institutions analyzed, five (all of which are saving banks) ail to maintain a Tier I ratio above 6% under the “adverse” scenario. Listed names have all passed the tests, with Santander and BBVA the most resilient and Pastor, with a 6% Tier 1, the weakest. Discussions on whether a 6% Tier 1 threshold was sufficiently challenging will continue. Under a more severe 8% threshold, 21
institutions would fail, with a hypothetical system capital shortfall of E13.2bn."
- Has Spain missed an opportunity to restore confidence? "Out of the 22 banks that exceeded the 6% Tier 1 threshold, there were six below 6.5% and another three between 6.5% and 7%. Our concerns are therefore not so much related to the size of the capital shortfall (under some tougher hypothetical scenarios the amount would increase by only E3.5bn), but the potentially missed opportunity by Spain to use the stress test as a catalyst to promote a second wave of recapitalizations (especially considering that the potential incremental amount would have been easily manageable for the FROB). Whilst acknowledging that the assumptions in the adverse scenario may never materialize, we fear that the stress test results have left the door open to further speculation about whether the resolution of the issues surrounding some smaller institutions’ solvency levels are being delayed. This might interrupt the restoration of market confidence (in light of market performance over the last few weeks) and, more importantly, make it difficult for these institutions to access term debt markets, one of the main issues the stress test was originally meant to address."
- Cautious on domestic, but positive on SAN and BBVA – valuation and risks "Spain’s macro outlook is no doubt challenging and Spanish financial institutions are facing what might be their toughest year in a decade. With the disappointing stress test results, still-poor sentiment and visibility may prove the main short-term headwinds. A very cautious general approach is necessary, especially with respect to Spanish domestic banks (all rated Hold). Stress test results reinforce our preference for Santander (Buy) and BBVA (Buy). The main risks relate to developments and newsflow regarding the Spanish economy. We derive our target prices from single-stage P/Tangible Equity and SOTP models."
DeutscheBank Spanish Financials 20100725
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