French Banks Face €285 Bn Capital Shortfall, Germany €199 Bn, Spain €92 Bn; Mish French Fine Update

FrenchBanksFace €285 Bn Capital Shortfall, Germany €199 Bn, Spain €92 Bn; MishFrench Fine Update

// Mish’s Global EconomicTrendAnalysis

At the risk of incurring another nonsensical fine for quoting someone on leverage and capital ratios of French banks, please consider EuropeanBanksFace $1 Trillion Gap BeforeReview.

European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the European Central Bank’s probe into the financial health of the region’s lenders, according to a study.

French banks show the biggest gap of 285 billion euros, followed by German lenders with as much as 199 billion euros, Sascha Steffen of the European School of Management and Technology in Berlin and Viral Acharya at New York University said in their study dated Jan. 15. The figures assume a benchmark capital ratio for other book measures of leverage of 7 percent, they wrote.

“A comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks,” the authors wrote, referring to the central bank’s Asset Quality Review stage of the Comprehensive Assessment.

Spanish banks have a shortfall of 92 billion euros, while Italian banks lack 45 billion euros, the study showed.

“Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks’ capital needs,” the authors wrote. “Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions.”

Particularly the banking sectors in Belgium, Cyprus and Greece “seem likely to require backstops,” they said.

Shortfall? WhatShortfall?

To ensure there will not be any major capital shortfalls in the next round of stress-free tests, please note ECB Waters Down 2014 Stress Tests Second Time

In what translates into yet another sham stress test, the ECB reduced bank capital requirements from 8% to 6% then effectively declared all sovereign bonds held in non-trading portfolios to be risk-free.

Without a doubt, banks will put all their sovereign bonds in hold-to-maturity buckets (at least for the duration of the stress test).

Fine Update

In case you missed it, please note Mish Fined 8,000 Euros for Quoting French Blog.

Here’s an update:

A French lawyer volunteered to represent me in an appeal to reduce the fine. His cost was €9,000 (without vat tax at 20%), plus judicial fees of another €1,000.

I quickly pointed out that legal costs (with uncertain odds of success) exceeded the fine.

The lawyer then reduced his cost to €4,000 upfront (again without the 20% VAT) plus 50% of any reduction in fine, plus judicial fees of another €1,000.

I am wondering about the mindset of French lawyers willing to waste their time and mine with such ludicrous proposals.

My original plan, which I am sticking with because the appeal period is now over, is to not pay the fine and never go to France (and I had no such desire anyway).

Mike "Mish" Shedlock

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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