UK banks spared recapitialisation through Sarkozy-Merkel plan?

Europe’s grand plan to strengthen its banking system is set to fall well short of current market expectations, identifying a capital shortfall of less than €100bn that must be made up over the next six to nine months, according to the latest official estimates.

Oh dear. This reads a lot like the not so great European banking recap is here. We reported on Monday that Morgan Stanley analysts were assuming this round of tests would not include a stressed adverse macroeconomic scenario, as per July’s. It looks like they’re spot on. Come on, why would you bother with an adverse scenario when you’re marking to market?

Speaking of which, the FT has a jewel of a detail about why the EBA seems to be coming up with a capital hole estimate smaller than many analysts expected — around €100bn, rather than nearer to €250bn. From the article:

Officials said the main reason for the different numbers was the EBA’s inclusion of the positive impact on banks’ capital position of applying market values to the region’s better performing sovereigns, such as Britain and Germany, offsetting the peripheral “haircuts”.

And look which banks stand to benefit:

UK 10-year Treasuries are currently trading at 11 per cent above their par value, compared with a 60 per cent discount on the equivalent Greek debt and 18 per cent on Italian debt.

The methodology helps the likes of Deutsche Bank – widely reckoned by analysts to be the hardest hit of Europe’s banks in the recapitalisation drive – and should ensure that Britain’s banks are spared recapitalisation altogether. The news will come as a particular relief to UK government officials, who had feared that the already part-nationalised Royal Bank of Scotland might need a politically sensitive injection of more bail-out money. One previous estimate by analysts at Credit Suisse had projected a €19bn capital shortfall at RBS.

Well ain’t that fortunate. The flight to safety has become a soft landing strip. (Until the feedback loops kick-in, of course.)

Remember, when it comes to Europe, even the technical is political.

http://ftalphaville.ft.com/blog/201...tuffed-and-shrinking-euro-banks-capital-hole/

 

"UK 10-year Treasuries are currently trading at 11 per cent above their par value, compared with a 60 per cent discount on the equivalent Greek debt and 18 per cent on Italian debt."

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