Italy’s biggest bank stocks might be under pressure, sliding over their exposure to slumping government debt, but they fared better than many of their peers in Europe’s strictest stress test ever.
The country’s largest lenders, Intesa Sanpaolo SpA and UniCredit SpA, finished in the middle of the pack, seeing their highest-quality capital ratios shrink to 9.66 percent and 9.34 percent respectively.
Those results surpassed Societe Generale SA and Banco Santander SA, among others.
The worst Italian performer, Banco BPM SpA, narrowly beat Britain’s Barclays PLC, which took last place.
Italian banks were closely watched in the European Banking Authority stress tests amid concerns that they are overexposed to the country’s sovereign debt and vulnerable to slowing economic growth.
There are concerns that the sharp rise in yields on Italian bonds will hurt their capital levels going forward.
The results did not surprise Intesa chief executive officer Carlo Messina, who had maintained that the test would not reveal any bad news for the lender.
He described Intesa as “a clear winner of this exercise” after the results were released.
BPM said the results do not reflect the “de-risking” actions it has taken this year, as well as some of the benefits of the merger that created the lender.
UBI Banca SpA, whose key capital ratio dropped to 7.46 percent, said that the test does not take into account its reduction in non-performing loans and its “strong containment of operating costs.”
Italy’s average reduction in CET1 ratios under the test puts it just below the average and ahead of Spain, Sweden and Belgium.
In the previous test released in 2016, Italy’s Banca Monte dei Paschi di Siena was the worst-performing bank in Europe.
It was not included in the last test after being rescued by the state.
The outcome of the stress test, which has no pass or fail grade, matters because it helps supervisors determine if banks need to add capital and what level of shareholder dividends and staff bonuses they can pay out.
Over the test’s three-year horizon, 25 banks would have faced regulatory restrictions and decreased payouts by 52 billion euros (US$59 billion).
Barclays saw its key measure of financial health sink to the lowest level among 48 banks in a European stress test, which gauged how well lenders could withstand heavy credit losses and other Brexit-related fallout.
Barclays’s fully loaded common equity Tier 1 ratio, a measure of its highest-quality capital, shrank to 6.37 percent in a so-called adverse scenario.
Fellow London lender Lloyds Banking Group PLC did not fare much better in the test, with the gauge of financial health falling to 6.8 percent.
That compared with a ratio of 14.85 percent for Dutch bank ABN Amro Group NV.
Barclays downplayed the importance of the results, saying the test did not take into account business strategies and management actions since the end of last year or future initiatives.
It also said its capital requirements would mainly be informed by the Bank of England’s own stress test results on Dec. 5.
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