By Eyk Henning in Frankfurt, Max Colchester and David Enrich in London
One of the main goals of Europe's yearlong banking stress tests
was to provide the public with reliable, comprehensive data about
the finances of the continent's lenders. But some errors and
inconsistencies nonetheless crept into the test results, which were
published Sunday.
The European Central Bank had to briefly remove from its website
the results of a large Italian bank after discovering an error in
its key capital ratio. Results of a review of Polish banks' balance
sheets were left out of the tests due to the late submission of
data. And the ECB and the European Banking Authority, which were
jointly overseeing the testing process, came up with drastically
different figures for an important Deutsche Bank AG data point.
The issues appear to be isolated and, unlike in previous
iterations of the European stress tests, don't call into question
the overall credibility of the exercise, according to analysts and
other experts. They said some mistakes are inevitable when
compiling over a million pieces of data.
The stress tests, and an accompanying review of the quality of
banks' assets, assessed the ability of 150 leading European banks
to withstand a deteriorating economic and financial environment.
All but 13 banks were found to currently have ample capital, a
result that officials said reflects the industry's generally strong
financial footing.
Investors nonetheless dumped shares of European banks, including
those that easily passed the tests. Bank stocks in the Stoxx Europe
600 index tumbled more than 2% Monday as some investors worried
about whether the tests will do enough to restore confidence in the
industry.
The biggest selloff was Italy's Banca Monte dei Paschi di Siena
SpA, whose shares plunged nearly 22% after the bank was found to
face a EUR2.1 billion ($2.7 billion) capital shortfall.
The Tuscan bank hired outside investment banks to advise it on
its strategic options, but analysts and bankers said those choices
are likely limited due to the bank's financial problems. Italy's
markets regulator imposed short selling bans on the shares of Monte
dei Paschi and another lender that failed the tests, Banca Carige
SpA.
Other hard-hit banks included Lloyds Banking Group PLC, whose
shares fell about 2%. Lloyds narrowly passed the European tests but
now faces a tougher exam being conducted by the Bank of
England.
While the tests have been going on since last year, European
officials were scrambling until the last minute to finalize the
data. On Sunday morning, barely an hour before the results were due
to be released, the EBA official in charge of the stress-test
process was still scrambling to rubber stamp a final version of the
report, causing him to show up several minutes late to a briefing
with journalists.
Shortly after the results were published, ECB officials detected
an error in the 2013 capital ratio of Monte dei Paschi, Italy's
third-largest bank, according to a person familiar with the matter.
The error, on the first page of a template posted on the ECB
website, was important because Monte dei Paschi was the worst
performer in the stress tests and therefore was at the center of
investor attention Sunday.
After discovering the error, ECB officials briefly removed Monte
dei Paschi's files from its website, according to the person
familiar with the matter, who described the problem as an isolated
"data-processing error." The corrected files were republished a
short time later. But their temporary removal drew the attention of
investors, some of whom privately expressed frustration that the
ECB had altered the figures without explaining what had
changed.
A Monte dei Paschi spokesman declined to comment.
Other banks had data issues too.
While the stress tests were conducted using banks' Dec. 31,
2013, data as a starting point, banks were told to provide
regulators with data for the first nine months of 2014 about
expenses they've incurred as the result of litigation and
regulatory investigations. That item is a nod to the mounting toll
inflicted on banks' finances by escalating penalties imposed by
regulators in the U.S. and elsewhere.
Deutsche Bank, facing a wide range of lawsuits and government
investigations, has been a focal point of such concerns, and so its
litigation-expense figure was being closely watched.
The EBA pegged Deutsche Bank's litigation costs for the nine
months of 2014 at EUR470 million, which was the figure Deutsche
Bank reported for the first six months of the year. The ECB's
figure was nearly triple that, at about EUR1.4 billion.
The reasons for the discrepancy, which didn't affect Deutsche
Bank's capital ratio, aren't clear.
An ECB spokeswoman said it used data covering Deutsche Bank's
litigation expenses for the first nine months of the year, adding
the data was provided by banks to the national supervisors. An EBA
spokeswoman said the agency used data that was provided to it by
the ECB. A Deutsche Bank spokesman declined to comment.
Many other banks simply didn't disclose their litigation
expenses at all. The ECB spokeswoman declined to comment on why
some banks didn't provide the data, adding it asked banks to
provide fines and litigation costs incurred in the first three
quarters and net of previous provisions.
Meanwhile, late-arriving data affected the results of the six
Polish banks that were subject to EBA tests. A footnote to the
EBA's report on the tests says the results for Polish banks don't
include the impact of an asset-quality review because of a "late
submission" of data by Polish regulators.
A spokesman for the Polish Financial Supervision Authority said
the regulator did conduct the requisite asset review, but that the
results were delayed due to certain unspecified "verifications"
with Polish banks on Saturday. That review knocked about two
percentage points off one Polish bank's capital ratio, meaning it
would have only barely passed the stress tests.
Write to Eyk Henning at eyk.henning@wsj.com, Max Colchester at
max.colchester@wsj.com and David Enrich at david.enrich@wsj.com