Prior to its takeover of European bank supervision on November 4, the ECB will release collections of data on the euro zone's 128 most important lenders to insure the banks can withstand future crises.
The published review in the second half of October will outline leverage measures, standardized ratios of non-performing loans and other statistics, giving the banks only two weeks to come up with plans to deal with capital shortfalls.
When the going gets tough, the tough suspend trading. Portugal has halted trade in Banco Espirito Santo with the stock off 17.2% on the session and 54% over the last month. At issue are financial troubles for the bank's privately-owned holding company, Espirito Santo International. Its accounts are currently under review by an external auditor who has identified irregularities and concluded the company "is in serious financial condition."
Santander (SAN -5.8%), UBS (UBS -1.8%), Deutsche Bank (DB -3.1%), Bank of Ireland (IRE -5.6%), Credit Suisse (CS -2.8%), ING (ING -3.2%), BBVA (BBVA -3.1%). U.K. banks: Barclays (BCS -3.8%), RBS (RBS -1.9%), HSBC (HSBC -1.9%), Lloyds (LYG -2%).
"The sale of Wilbur Ross’s remaining stake in Bank of Ireland (IRE), giving up the board seat which he held for just under three years, reinforces our view that there remains little in the way of incremental positive catalysts on the horizon," says Nomura. “Further overhang remains with over 60% of the shares in the hands of the top 10 investors, although most are in it for the long haul.”
Down nearly 4% in early action, Bank of Ireland is now off 2.5% in London action. The ADRs fell 2.1% in New York trade yesterday following the news.
Three years after his investment helped keep Bank of Ireland (IRE -1.6%) from being nationalized, Wilbur Ross is exiting his holdings. Ross cut his 9% stake down to 5.5% in March, and the current offering will bring it to zero. Sources say Ross will have doubled his money on the deal.
"At the heart of Wilbur Ross is a distressed investor," says analyst Ciaran Callaghan. "Bank of Ireland is no longer a distressed play."
Capital shortfalls will need to be covered within six months for those lenders failing under the EBA's baseline stress test scenario, while banks failing under the adverse scenario will have nine months to fix things.
ECB Vice-President Constancio: "Banks should start to consider what private sources of capital could be raised as a result of this exercise and plan accordingly."
Wilbur Ross and Fairfax Financial (FRFHF) paid about €0.10 per share when they acquired about an 18% stake in Bank of Ireland (IRE -6.6%) in 2011 to help prevent the lender's nationalization. Not unexpected given strong demand for the stock, today's sale whittles their holdings down to about 12%. The two have more than tripled their money with the investment.
The Irish government continues to hold a 14% stake in the bank and there will no doubt be heightened interest in an offering of these shares.
Good news could be in store for European banks as chatter says the ECB is considering just a 6% capital requirement in its stress tests as opposed to the 8% previously promised. A small number of countries aren't even satisfied with 6% and reportedly may press for a lower number.
Previous European bank stress tests are known mostly for giving passing grades to lenders who just a short while later required government bailouts.
Tails in the air today include: Santander (SAN +1.6%), Deutsche Bank (DB +2%), ING (ING +0.9%), BBVA (BBVA +3.4%), Bank of Ireland (IRE -0.6%), and Allied Irish Banks (AIBYY +6.3%).
Talked about for some time now, Bank of Ireland (IRE -2.6%) today moved forward with a €580M equity raise to help fund the redemption of some of the government's preferred stake in the rescued lender. The move allows the bank to sidestep a 25% increase in the amount owed on the preferred stake had it not been redeemed by the end of March.
Ireland itself is hoping to exit its own bailout on December 15 and the successful share sale should help bolster that plan.
Bank of Ireland's (IRE -3%) core tier one capital ratio falls a sharp 360 basis points to 10.6% following a balance sheet assessment and asset quality review by the Irish central bank. Under Basel III rules set to begin on January 1, the ratio will slip to 9.85%. "The bank continues to expect to maintain a buffer above a tier one ratio of 10%," says the lender, and the central bank has not asked it to raise fresh capital.
The review found the bank needs to reserve for an additional €360M in mortgage losses, €486M for property, construction, SME, and corporate loans, and €547M for defaulted loans.
The news comes at a tricky time for the bank which is considering raising €600M in fresh equity to help buy back $1.8B in preferred stock owned by the government (the cost of redeeming jumps 25% in March).
"Reflect(ing) our belief that Bank of Ireland (IRE) is making steady progress to return to profitability on an ongoing basis, and that its funding and liquidity profiles are normalizing," S&P affirms its BB+/B rating on the lender.
Notable, says S&P, is the bank's boosted net interest margin (thanks to lower funding costs) which should lead to significantly higher net interest income this year and higher still in 2014.
Earlier this week, the bank hinted it may sell common stock to help repay €1.8B of state-owned preferred shares. The cost of redeeming these shares is set to jump by 25%, or €450M in March under the terms of its bailout agreement.
Ireland goes commando, setting the December 15 exit from its 3-year €67.5B bailout without a credit line from the EU. Finance Minister Michael Noonan suggested a couple of months ago Ireland might ask for a €10B credit line from the troika, but lines cost money even if not used, and come with strings like continued foreign oversight of the country.
Ireland is set to become the first eurozone country to exit a bailout program, with Prime Minister Enda Kenny saying that the nation will leave its €85B scheme on December 15.
Ireland may exit without the insurance policy of a precautionary credit line, which would stop the country from obtaining funds from the European Central Bank's Outright Monetary Transactions program of government bond purchases, but would also reduce the the conditions involved and the close monitoring from EU officials.
Bank of Ireland (Governor & Co of) provides financial services in Ireland to all sectors of the Irish economy. These include checking and deposit services, overdrafts, term loans, mortgages, business and corporate lending, among others.