Bloomberg News

DZ Bank Said to Need More Capital in Redone EBA Stress Test

December 06, 2011

(Updates with plans to boost capital in second paragraph.)

Nov. 24 (Bloomberg) -- DZ Bank AG, Germany’s biggest cooperative lender, may be required to boost its capital after a revised stress test from the European Banking Authority, joining four German lenders previously told to raise their buffers, according to two people familiar with the matter.

DZ Bank may need to raise about 350 million euros ($467 million), said one of the people, who declined to be identified because talks are confidential. The bank won’t have to tap owners for the funds, and can reach the EBA’s 9 percent capital threshold through retained earnings and asset cuts, the person said. The number may still change as the EBA’s testing method is being discussed with national regulators, said the people.

Europe’s financial regulator last month estimated the region’s lenders need 106 billion euros to reach a 9 percent core Tier 1 capital ratio by mid-2012, after marking their sovereign bonds to market. That included an estimate of 5.18 billion euros for four German banks: Commerzbank AG, Deutsche Bank AG, Norddeutsche Landesbank and Landesbank Baden- Wuerttemberg.

The EBA may ask German lenders to boost their capital levels by more than 12 billion euros as it reviews their ability to withstand losses from the sovereign-debt crisis, said two people familiar with the EBA’s estimates.

Criteria in Question

The amount, presented by the German government to lawmakers in Berlin yesterday, may change in a final assessment as early as next week because national regulators in countries such as Germany and Spain are contesting the criteria being applied, said the people, who declined to be identified.

Spokesmen for Deutsche Bank and Commerzbank, the country’s two biggest lenders, as well as state-owned lenders NordLB and LBBW and DZ Bank declined to comment on the new EBA estimates.

DZ Bank, which is based in Frankfurt, said last month no recapitalization requirement was identified “at the present time,” though it was subject to review by regulators. The lender’s loans to the public sector in Greece, Ireland, Portugal, Spain and Italy totaled about 6.5 billion euros at the end of September, down from 7.8 billion euros at the end of 2010, said one of the people.

European leaders are demanding that banks raise more capital after they agreed to accept a 50 percent writedown on Greek sovereign debt as part of wider measures to stem market turmoil.

--With assistance from Nicholas Comfort in Frankfurt. Editors: Frank Connelly, Steve Bailey

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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