European banks that failed EU 'stress' test plan to raise €3.5bn

The 'failed' banks aim to raise capital to calm the markets before they open for trading tomorrow

European banks that failed an EU health check are detailing plans this weekend to raise €3.5bn of capital in a bid to reassure the markets before they open for trading tomorrow.

Germany's Hypo Real Estate bank, five Spanish regional savings banks – the "cajas"– and Greece's ATEbank all failed the tests, which have been widely criticised for being too soft.

Hypo Real Estate bank said Friday's failed test was of "limited relevance" as the bank more than met the capital requirements of the so-called "stress testing" except for two "particularly negative conditions for 2011".

It also said the examination did not consider a €210bn transfer of assets to its "deconsolidated environment" – or bad bank – later this year. However, the EU and the German Financial Markets Stabilisation Fund (SoFFin) still has to approve the transfer.

According to Hypo: "This transfer will substantially reduce risk-weighted assets. Furthermore, given the financial markets crisis has not been fully resolved, Hypo Real Estate Group applied to SoFFin for a recapitalisation in an aggregate amount of €10bn, of which €7.87bn has been approved to date. Given full recapitalisation, Hypo Real Estate would exceed the 6 per cent tier 1 ratio for all scenarios used in the current stress test."

The five Spanish banks – Banca Civica, Diada, Espiga, Unnim and Cajasur – failed a worst-case-scenario test which allowed for a 28 per cent fall in Spanish house prices during 2010-11. The country's government has already been restructuring and recapitalising its regional savings sector, setting aside €12bn, of which €3bn has already been used.

Greece's ATEbank said it would proceed with a share capital increase with its main shareholder, adding: "The Greek state will participate in the share capital increase, which will reinforce the bank's position."

Overall, the testing of the 91 banks showed that, under the adverse economic and "sovereign shock" scenario modelled, total impairment and trading losses could amount to €566bn.

The tests had little impact on the US market which was still trading when the results were revealed as the euro ended steady against the dollar.

But criticism has been growing, as it was thought that more banks might fail. Not all the banks revealed the full extent of their sovereign debt, and government bond losses were only applied to banks' trading books. Other banks from Germany, Greece, Italy and Spain – Postbank, Pirraeus, Allied Irish Bank, UBI Banca and Bankinter – just scraped through with capital ratios of less than 7 per cent.