▷ Analysis by Alvarez & Marsal / winners and losers of the Europe-wide …

29.10.2021 – 12:45

Alvarez & Marsal

Frankfurt am Main (ots)

  • Despite the record decline in hard core capital: the sector is resilient
  • Analysis based on B2G recommendations makes winners and losers visible

A&M has analyzed the results of the Europe-wide bank stress test 2021 by the European Banking Authority (EBA) and evaluated against the Pillar 2 Guidance (P2G) recommendations. Investors will consider these to be of great importance in the future, as they are a key factor in capital buffers that are available for distributions via dividends and buybacks.

The advantage of the P2G approach is that it makes the connection between capital depletion and decisions about dividends and buybacks more visible. The analysis shows winners and losers in the bank stress test. Of the larger banks, Credit Agricole and ING have the most room for dividends and buybacks.

In an initial analysis based on the decline in Common Equity Tier 1 – CET1) collected by the EBA, A&M estimated and categorized the P2G values ​​of the various banks.

The representation takes place in a quadrant which shows the respective capital resilience and flexibility of the banks via the axes “P2G value in%” and “Existing capital buffer in%”. A high P2G value implies a low capital resilience. Capital flexibility, in turn, is measured by how much buffer there is, measured against the CET1 minimum of 5.5%.

EBA stress test observes record decline in Common Equity Tier 1 capital

The EBA’s stress test covers the 50 largest European banks and thus around 70 percent of all bank assets in the euro zone. These are subjected to an economic crisis scenario in order to simulate their reliability and stability over the next three years. Due to pandemic exemptions, the stress test originally planned for 2020 has been postponed to this year.

The stress test shows the largest loss of CET1 capital recorded to date in such a crisis scenario. This can be explained by the circumstances of the pandemic. Germany was the country with the fourth highest shrinkage. A majority of German banks showed a greater decline in Common Equity Tier 1 capital compared to the last EBA stress test from 2018.

Nevertheless, due to sufficient buffers and a stable starting position, the banks examined were in a position to cope with this. The highest capital shrinkage of all previous stress tests will not prevent the return of dividends and buybacks. All in all, the results underline the high resilience of the sector.

About Alvarez & Marsal

Companies, investors and public institutions around the world turn to Alvarez & Marsal (A&M) for leadership, execution and measurable results. Privately held since its inception in 1983, A&M is a leading global consulting firm focused on business consulting, business performance improvement, due diligence and turnaround management. Our customers benefit from our in-depth specialist knowledge and experience when conventional approaches are no longer sufficient to bring about changes. With over 5,400 employees on four continents, we deliver concrete results for companies, boards of directors, creditors, private equity firms, law firms and government agencies facing complex challenges. With our many years of extensive experience in the restructuring and reorganization of companies, we make difficult decisions together with our customers, generate growth and achieve tangible results.

To learn more, visit AlvarezandMarsal.com and follow us on LinkedIn, Twitter and Facebook.

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Original content by: Alvarez & Marsal, transmitted by news aktuell


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