FT's French mistake

Spain’s best-seller financial daily Expansión reflected on Friday how adamant the country’s banking authorities are to clear the air after the Financial Times named seven entities among a European selection of 16, all of which apparently were in extremely urgent need to raise tier 1 capital.

“The British newspaper FT yesterday published, quoting a senior French official, that the European Union is to push for critical re-capitalisation of 16 banks and savings banks whose core capital remains at the minimum 5 per cent level against the maxim-stress scenario drawn up in the July tests for 2012 [The Corner’s translation. The original piece].

The Spanish slices of this sour cake were Banco Popular Espanol, Bankinter, Caixa Galicia, Banco Cívica, Caixa Ontinyent, Banco De Sabadell and Bankia, although FT corrected its first take later on:

“This article has been changed following publication to reflect the fact that Bankia of Spain has already held an initial public offering to raise new funds.”

In truth, it seems it was Le Figaro‘s “fault”. The French newspaper printed an interview with EU internal markets commissioner Michel Barnier, who was quoted as referring to some 16 financial institutions with too weak a profile. Bernier did not mention any bank by its name, but the FT did and

“In order to avoid these rumours triggering more market funding restrictions for our banks, the Spanish regulator has made a statement in defence of Spain’s entities.”

Le Figaro had not used that there’re-16-tumbling-banks comment in the headline for a reason, which may point at an FT’s eagerness to exhibit euro zone trouble news where there is little. Commissioner Bernier, in fact, had spoken about a situation that was already known, as a spokeswoman for the European Banking Authority (EBA) today said to Reuters:

“The time frame for assessing these actions and monitoring their implementation is also in the recommendation. There are no changes to that time line.”

Investigative journalist Teri Buhl may rest reassured, then, after she yesterday asked this question on Twitter:

“how will Spanish pubs reprint this FT news 7 of their banks on threshold of needing more capital? Ignore it or deny it?”

As expansion.com‘s editor Miquel Roig was vehement to confirm, the FT story has been not only translated and published in its entirety, but dissected:

“The financial institutions that, according to the FT, will be under pressure to increase their capital are seven… although when provisions, convertible bonds already issued, deleverage actions and other mitigating factors are included, none of them maintains a core capital lower than a 6.5 per cent rate, that is, 1.5 per cent over the minimum required level… For instance, Banca Cívica reaches 9.4 per cent, Sabadell 8 per cent and Popular a 7.4 per cent.”

Expansion feels compelled, too, to emphasise that the EBA will accept those generic provisions as core capital ahead of its coming stress tests, something it didn’t this year and that brings up professor William K. Black‘s crude yet timely post about “Why do Banking Regulators bother to Conduct Faux Stress Tests?”

“Stress tests were first mandated for Fannie and Freddie by statute… AIG passed its stress test immediately before it failed. The three big Icelandic banks passed their stress tests shortly before they were revealed to be massively insolvent. Lehman passed its stress tests…

“One need not believe in the efficient markets hypothesis to believe that anyone sentient in the markets must know that the stress tests are shams.”

Spanish banks want to demonstrate you could spell this same sentence in reverse: the mistake is in that they are sound.