Bank of Ireland shares drop by more than four per cent

Bank of Ireland shares drop by more than four per cent

The four other Italian banks subject to the test - Intesa Sanpaolo SpA ISP, -2.03%, UniCredit SpA UCG, -7.94%, Banco Popolare SC BP, -3.89% and Unione di Banche Italiane SpA UBI, -4.01% - all showed resilient capital levels under stressed scenarios.

Bank of Ireland and AIB both dismissed the tests as a snapshot in time, as it reflected the position at the end of past year.

Bank of Ireland's CET1 in a stress scenario of 6.1 is also well below the average.

Mr. McKinley said the banks were well capitalised, and balance sheets were improving but said the risks posed by Brexit meant dividend payouts would be pushed out.

The two banks suggested they felt they had been unfairly penalised because of the inclusion throughout the three years of costly legacy features from the last crisis that they are shedding or have already gotten rid of, a view backed by most analysts on Monday.

The Italian banking system is deeply troubled, according to the European Banking Authority's latest stress-test results. The Transaction, which entails a rights issue up to Euro 5 billion, assisted by a pre-underwriting agreement from a consortium of primary global banks. Barclays was likely the biggest disappointment for the market.

As the WSJ chart above shows UniCredit and Raiffeisen, the owners of large banks in Hungary, are among the 11 worse performers, i.e. those banks whose fully loaded capital ratios would be below, or less than 1.5 percentage points above, their widely watched regulatory thresholds in a sharp economic downturn. One of the reasons is that Greek and Portuguese banks were not included in the testing process. Deutsche Bank was affected by the European Banking Authority's inclusion of conduct risk for the first time, and this factor reduced its ratio by 220 basis points, versus its starting point of 13.2%.

The 2008 financial crisis, made far more severe in Ireland by a simultaneous property crash, left Ireland's banks with huge stocks of non-performing loans (NPLs) which they have made strides in reducing, in contrast to many of Italy's banks. For instance, the adverse scenario for Italy anticipates a real GDP fall of nearly 6% in the three years from 2016-2018.

A Moody's senior vice-president, Katharina Barten, said: "The majority of European Union banks have robust capital levels in the adverse scenario". Eight had common equity Tier 1 ratio of less than 7.5 percent under the adverse scenario.