Only eight banks haven’t already plugged capital gaps or satisfied the ECB with plans to shrink, out of 25 found with a shortfall. That means just 6.35 billion euros ($8 billion) remains from a 25 billion-euro hole, and half of that is in Italy. The ECB, releasing results of its year-long bank audit yesterday, said investors should focus on the insight they’ve gained into lenders’ books instead.
Just over a week before the central bank becomes the financial supervisor of the euro area, officials are attempting to end half a decade of financial turmoil with full disclosure on any bad loans and mispriced assets. The ECB is staking its reputation on this exercise convincing investors that lenders are clean and can again play a role in reviving a stalling economy.
“Some people may wish to conclude that because there is no ‘blood on the street,’ the exercise is not credible,” said Eli Haroush, a fund manager at APG Asset Management in Amsterdam, which oversees 390 billion euros. “I think it is credible. It was a very serious effort and a significant amount of capital has been raised during 2014.”
While the ECB report shows 13 banks with capital gaps after measures taken this year, footnotes explain that five of them -- two in Greece, two in Slovenia and Belgium’s Dexia SA, -- don’t need to proceed with finding funds beyond what they’ve already raised, or have also reduced balance sheets adequately or are being wound down.
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