Helaba to overhaul capital for stress tests

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A second German bank is to strengthen its capital in an attempt to pass the forthcoming European bank stress test.

The owners of Helaba, one of the group of regionally-owned German lenders known as Landesbanken, said on Wednesday that they would adapt the terms of some €1.9bn ($2.7bn) of the bank’s hybrid capital so it would meet forthcoming global bank regulations.

Helaba is the second German Landesbank in as many weeks to decide to change its capital structure after the European Banking Authority announced that “silent participations”, a form of debt with equity characteristics, will not be eligible for an ongoing bank stress test. Results will be published in June.

Last week NordLB took measures to adapt its capital and raise €600m in fresh capital. Both it and Helaba feared they might not pass the stress test without such measures, which have to be implemented or at least notified by the end of this month to satisfy the EBA.

The EBA has been criticised in Germany for taking a firmer approach to the country’s silent participations than global regulators, which have agreed a timetable up to 2018 for the hybrid capital to be replaced. But the authority – as well as Germany’s government – is privately likely to be pleased that its decision has forced the owners of some Landesbanken to make a commitment to strengthen the banks.

While Germany’s bigger commercial banks such as Deutsche Bank and Commerzbank have raised money from investors in recent months, the country’s many publicly-owned banks are reliant on the backing of their guarantors for equity capital – unless they abandon public sector status, which they are loath to do.

One Landesbank, HSH Nordbank, did have plans for an initial public offering but abandoned the idea in the financial crisis.

Helaba is owned by savings banks in the German states of Hessen and Thuringen as well as by those states’ governments. They said they would take any steps required for the bank to pass the stress test.

“We are unanimous that Helaba should and will pass this test – there is no other option,” the owners said in a statement. Two weeks ago, Hessen’s economy minister had said the bank should consider a boycott of the stress tests because of the EBA’s stance.

Helaba survived the financial crisis relatively well, with neither it nor NordLB needing a bail-out, in contrast to HSH Nordbank and three other regionally owned Landesbanken. WestLB, the most troubled, may be broken up in coming months.

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