As previously posted Lloyds/Barclays et al have passed the much vaunted stress testing.
A copy of the Lloyds’ response is below.
Lloyds Banking Group (‘the Group’) notes the publication of the results of the EU-wide stress test exercise conducted by CEBS. We welcome the positive steps being taken by CEBS to assess the overall resilience of the EU banking sector and to provide comfort on banks’ ability to absorb further possible credit and market shocks.
Lloyds Banking Group has a robust capital position that reflects the significant capital raising undertaken in 2009. At the end of 2009 the Group’s tier 1 capital ratio was 9.6 per cent. As expected, the Group’s stressed tier 1 capital ratio remains well above the standard required in the CEBS stress test. In addition, the Group has contingent capital (equivalent to 1.5 per cent of tier 1 capital) which has not been taken into account. This would be available to absorb losses in a more severe stress.
The stress test results with respect to UK banks were prepared by the Financial Services Authority (FSA) in conjunction with CEBS. The benchmark scenario referred to in the results uses a set of key UK macro-economic variables that are at the lower end of consensus expectations. The stress test exercise also assumed a static balance sheet and did not take into account any guidance already provided to the market by the Group and thus did not consider the benefit of the Group’s ongoing balance sheet reductions. In relation to State Aid related asset reductions, the CEBS stress test has been undertaken using a very conservative assumption such that no asset reductions have been modelled as achieved during the two year stress period. Consequently, the results are not a predictor of future financial outcomes.
The Financial Services Authority (FSA) has also issued a statement on the results of the EU-wide stress test exercise that provides further information. The FSA continues to monitor UK banks against its own stringent set of stress scenarios. The Group continues to meet comfortably the higher capital standards introduced by the FSA since the financial crisis began.
Further detail on the Group’s financial performance will be available on 4 August when it issues its 2010 Interim results.
Please find below links to the CEBS announcement and the related FSA statement.