Europe’s banks face moment of truth from ECB review

At around noon today, the euro zone’s 130 biggest banks will receive the European Central Bank’s final verdict on their finances after a review aimed at drawing a line under persistent doubts about the health of the region’s banking sector.

Most banks already have a good idea of how they have fared in the region’s most comprehensive ever bank tests, after getting “partial and preliminary” results from the ECB in recent weeks.

But the final numbers were only agreed by senior regulators and supervisors late last night.They will not be made public until Sunday, and the ECB has asked banks not to make any disclosures until this point.

The results will end months of uncertainty on what measures they will be forced to take to prove they can weather another economic crash. Markets are expecting few surprises, and there have already been some reports of how banks have fared.

Permanent TSB, which is 99.2 per cent owned by the State here, is expected to announce details of its capital-raising plan after the results of the tests, which it is expected to fail.

The ECB’s assessment, which is designed to allow the central bank to take over with a clean sheet when it becomes the euro zone’s banking supervisor on Nov. 4, is based on the banks’ financial positions at the end of 2013.

The banks have strengthened their balance sheets by almost €203 billion since mid 2013, the ECB says, which implies that several banks which failed are likely to have already raised cash to deal with any shortfall. Nonetheless, the outcome of the tests will be closely watched.

"This is the one chance that the ECB gets to once and for all step out of the shadow of all the national regulators and really claim its own independence," said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute in Washington DC.

Over the past year, more than 6,000 experts combed through the euro zone's 130 largest banks' books - including household names like Deutsche Bank, Santander and BNP Paribas and national champions like Bank of Cyprus and Bank of Ireland - to unearth any hidden losses and weaknesses. As well as setting the ECB up for its new role as supervisor, the tests were also designed to remove investors' lingering doubts about euro zone banks, which continue to trade at a discount to banks in the United States.

Analysts say the results could pave the way for US investors, who are holding historically low levels of European bank equity, to pile back in since the banks’ finances will have the seal of approval from a supranational body.

Reuters