16 November 2015 by lberuti
On Saturday, the ECB published the results of the stress tests performed on some Portuguese banks, including BESPL (Novo Banco SA). The bottom line is that BESPL did well under the baseline scenario where it met the 8% capital requirement with a CET1 ratio of 8.24%, but failed under the adverse scenario, where it fell short of the 5.5% CET1 hurdle by €1.4bln with a CET1 ratio falling to 2.4%. To address the shortfall, BESPL will work on RWA reduction (it already stood at €3.5bln at the end of H1 2015 filling €187mln of the shortfall), work on asset sales (the sale of GNB Vida could on its own bring €400mln to €1bln, even if the high estimation is probably a bit fanciful), and the remaining part of the equity injection should then come from whoever eventually buys the bank from the resolution fund once the sale process resumes. Investors still await the exact details of the capital raising, but as their expectations regarding the stress test shortfall had steadily raised since the beginning of November, the 5 year risk premium got back exactly where it was back then and tightened 157bps to 613bps.