German bank IKB says surprised to get regulators' call
FRANKFURT Dec 9 (Reuters) - Regulators have surprised German bank IKB, one of the highest-profile casualties of the financial crisis, with a decision to include it in an upcoming health check of major banks by the European Central Bank, IKB said on Monday.
IKB, the smallest German bank to be deemed important enough to be supervised from November next year by the ECB instead of by national regulators, said it could meet the ECB's demands but it would not be easy.
"(It) came unexpectedly for IKB and triggered complex management issues as well as the need to commit considerable resources and therefore costs," IKB said in a statement.
The European authorities will stage a series of exercises next year to test the ability of the chosen banks to withstand a future crisis without resorting to taxpayer-funded bailouts.
The tests are billed as the most rigorous assessments the banks have ever had, designed to remove doubts about their health after botched EU stress tests in 2010 and 2011 which failed to reveal major problems at some lenders.
Tested banks need to meet a minimum Core Tier 1 equity capital requirement of 8 percent of risk-weighted assets by the end of 2013, something IKB described as "surprisingly harsh ... that left banks little time to react."
IKB's balance sheet totalled 25.8 billion euros ($35.3 billion) at the end of September but it sits alongside Deutsche Bank, with a balance sheet almost 70 times bigger, on the list of banks deemed to be systemically critical and therefore subject to the ECB check. Deutsche Bank is Germany's largest bank with a balance sheet worth 1.8 trillion euros.
The ECB said on Oct. 23 it could consider banks with as little as 27 billion euros on their balance sheets as systemically critical. IKB's balance sheet total for its fiscal year ending in March was just above that threshold at 27.6 billion euros, although it has slipped below since.
A spokeswoman for the ECB said the list of 128 banks proposed for the checks had been discussed and endorsed by all euro-zone national supervisors before it was published for the first time on Oct. 23.
Even cutting administrative costs as part of an ongoing restructuring were made difficult due to the efforts required for the ECB's comprehensive assessments, which were disproportionately large for a small bank, IKB said.
Known before the crisis mainly as a lender to mid-size German companies, IKB required several bailouts from development bank KfW and the German state after its off-balance sheet investment vehicles ran into funding problems in 2007.
Following the rescues, IKB was taken over by KfW, which in August 2008 sold it to U.S. investor Lone Star.
The bank reported a profit of 8 million euros for the six-month period ending in September, mainly due to a fall-off in legal and consulting costs, compared with a 51 million-euro loss in the same period last year. ($1=0.7308 euros) (Reporting by Thomas Atkins and Jonathan Gould; Editing by Greg Mahlich)
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