RPT-Fitch: ECB Significant Banks Update Reflects More Than Just Size

Fri Jul 4, 2014 5:36am EDT

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July 4 (Reuters) - (The following statement was released by the rating agency)

The ECB's update of the list of banks it considers significant enough to supervise directly largely reflects factors other than just size, Fitch Ratings says. The list shrunk to 120 institutions from 128 as a result of the removal of 12 and the addition of four. The banks taken off the list mostly have niche characteristics and business models that are more in line with non-bank financial institutions, have reduced in size, or are less domestically important. The new joiners are part of international groups, with three having ultimate parents outside the eurozone, so cross-border activities may be an influence in determining their significance.

In Italy, Credito Valtellinese (Creval) was removed from the list. It reduced assets substantially with loans down 7% in 2013, more than other medium-sized domestic peers. With 14 Italian banks included as significant, a good overview of the Italian banking sector could probably be obtained without Creval. This is also likely to be the reason why Credito Emiliano, the second smallest Italian bank on the original list, was also dropped even though it had EUR31bn assets at end-1Q14, so above the EUR30bn threshold set.

Other banks excluded include two captive vehicle finance companies in France, one clearer (LCH.Clearnet) and one central securities depository (Clearstream), which do not have traditional bank models. Other leavers that are not typical commercial banks included Germany's KfW IPEX-Bank, the commercial arm of Europe's largest development bank, and specialised upper midmarket corporate lender, IKB.

The newcomers include Barclays' Italian branch, surprising as it is the only branch on the list. Barclays' gross exposure to Italy was EUR37bn at end-2013, much of which would likely be in the local branch. We expect to see this shrink as it is not strategic and Barclays wants to exit retail banking here. Barclays also has operations in Spain and Portugal, but it is also downsizing its retail and corporate business in these countries.

Two Russian subsidiaries in Austria - Sberbank Europe and VTB Bank (Austria) - may have been included because of their cross-border business with Russian-related entities. The scale of international activities is one criteria for determining significant institutions. Even including their respective operations in other eurozone countries, these subsidiaries are small relative to their parent groups. The banks could transfer some business to subsidiaries outside the eurozone to reduce their activities and potentially be removed from the list.

Belgium's Banque Degroof is the other new joiner, while Germany's Wuestenrot & Wuerttembergische, Estonia's AS DNB Bank, and Ireland's Merrill Lynch International Bank were also removed. Spain's CEISS was also taken off the list as a separate entity as it is now included under its parent, Unicaja Banco.

The final list will be published in September 2014 and will be reviewed on a regular basis, with the ECB assuming its prudential supervisory role as of 4 November 2014. There is significant overlap among the 120 ECB significant banks and the 124 banks participating in the 2014 European Banking Authority's (EBA) stress test. The EBA's list is final, so banks that fall out of the ECB's direct supervision but are on the EBA list will still be participating in this year's stress test. However, we would expect the leavers to be excluded in subsequent EBA stress exercises.

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