European banks are getting rid of sovereign bonds

Over the past six months, European banks have gotten rid of government bonds of troubled eurozone countries worth €65 billion. Thus, banks are preparing for the entry into force of new Tier 1 capital adequacy requirements, for which they lack a total of €115 billion.

Late last week, the European Banking Authority (EBA) presented a new study of the capital structure of the largest European banks. The study is being conducted to understand how banks can prepare for the entry into force of new EU requirements, according to which by the end of June 2012 the level of capital adequacy of the first level, taking into account additional capital buffers, should be 9%. The EBA last assessed capital shortages in EU banks in September. Then the total amount was €106 billion, now it is €114.7 billion.

As in previous tests, the greatest capital shortages are in Greece (€30 billion) and Spain (€15.4 billion). However, the forecast deficit of German banks increased significantly (from €5.2 billion to €13.1 billion). As Barclays Capital analyst Torsten Polleit explains, “One of the reasons for the new results is that the current tests no longer take into account positive equity flows from government bonds held on their balance sheets. Given that many German banks hold significant amounts of German government bonds, the changes in assessing capital adequacy for German banks and turned out to be so significant." French banks need to raise €7.3 billion, Austrian banks – €3.9 billion.

According to the EBA, EU banks currently hold a total of €511 billion in sovereign debt from troubled eurozone countries - Greece, Ireland, Italy, Spain and Portugal (referred to by the EBA as GIIPS) - with 70% held by banks from the countries themselves GIIPS, however, banks in Germany (11% of the total), France (9%) and Belgium (5%) also have significant reserves of government bonds of troubled EU countries. At the same time, according to the FT, European banks have been actively selling debt obligations of troubled countries in recent months - from July to December, banks sold €65 billion worth of government bonds of GIIPS countries to the ECB. BNP Paribas is most actively getting rid of such securities (portfolio reduction by €7 billion, to €28.7 billion) and Deutsche Bank, which reduced investments by €6 billion, to €3.2 billion. In general, out of 65 European banks, 55 reduced their investments in government bonds of GIIPS countries, but ten - mostly Spanish - increased, buying government bonds of Spain and Italy.

Evgeny Khvostik

The national debt is leaving the balance sheet