Bloomberg News

Helaba Says Bank Failed EBA Capital Test on ‘Formalities’

December 07, 2011

(Updates to add European capital requirements in fifth paragraph.)

Dec. 7 (Bloomberg) -- Landesbank Hessen-Thueringen said it failed a financial-strength test by Europe’s top banking regulator because of “technical formalities” relating to a form of German capital.

Germany’s fifth-biggest state-owned lender would need to raise 1.5 billion euros ($2 billion) to reach a core Tier 1 capital ratio, a measure of financial strength, of 9 percent or more because the European Banking Authority’s test doesn’t account for measures that will take effect by the end of the year, Frankfurt-based Helaba said today in a statement.

European leaders are pushing banks to raise capital to bolster confidence in the industry after they asked investors to take writedowns on Greek debt to help bail the country out. Helaba said it won’t need additional capital as a state shareholder will convert so-called silent participations, a form of non-voting capital used in Germany, by the end of the year.

Helaba would fail the test because it’s based on data from the end of September, which don’t reflect the effect of the conversion of 1.92 billion euros in silent participations held by the German state of Hesse, according to the statement.

Sovereign Bonds

The EBA estimated in October that the region’s financial institutions 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 includes an original estimate of 5.18 billion euros for German banks.

Regulators may ask German lenders to boost their capital levels by less than 10 billion euros, two people familiar with the estimates said last week.

Helaba entered the capital as “hybrid instruments not subscribed by government” in a data submission to the EBA, according to the statement, which didn’t disclose details of the test. The lender would have a core Tier 1 capital ratio of 9.8 percent at Sept. 30 if the silent participations were recognized, the company said.

The German bank and Hesse have taken all necessary measures to convert the state’s silent participations to core Tier 1 capital, the bank said.

--With assistance from Angela Cullen in Frankfurt. Editors: Stephen Taylor, Jon Menon

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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