Oops.. RBS Says It Misinformed Regulators On Stress Test

Shares in the Royal Bank of Scotland Group PLC (NYSE:RBS) (LON:RBS) fell nearly 3% on the news that it is less prepared for an economic crisis than it had previously stated. The stress test determined that RBS is the least prepared of U.K. banks. A spokesperson claimed that its most recent capital position was unchanged by the “theoretical” stress test.

The results

20% of European banks failed the stress tests, according to a report published by the European Banking Authority last month. The tests required banks to show that they possessed enough capital to withstand various economic shocks, including a sudden increase in unemployment, a crash in house prices and a slowing of economic growth, in a theoretical re-run of the economic crisis.

Royal Bank of Scotland RBS

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The key measure was the common equity tier 1 ratio, which evaluates the financial strength of a bank based on its earnings. Banks had to simulate how they would be affected by a recession that caused £20 billion in losses.

After revising its results, Royal Bank of Scotland Group PLC (NYSE:RBS) (LON:RBS) has said that it would have a common equity tier 1 ratio of 5.7%, just above the 5.5% that the EBA requires to pass the test. The bank had previously reported a ratio of 6.7%. Bank of England officials uncovered the mistake after analyzing figures provided by RBS, which was the only mistake made by a U.K. bank.

RBS least comfortable

Although it passed, reported results leave Royal Bank of Scotland Group PLC (NYSE:RBS) (LON:RBS) as the worst performing U.K bank Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) reported a ratio of 6.2%, Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) 7.1% and HSBC Holdings plc (ADR) (NYSE:HSBC) proved most comfortable with 9.3%. RBS claims that based on its latest earnings it in fact has a stronger cushion than the stress tests revealed.

A spokesperson for RBS said the bank would investigate why erroneous figures were submitted: “The result remains a pass under the most stressed scenario, and there is no impact on our last reported capital position of 10.8% or our 2016 capital target of at least 12%. We are examining how this mistake was made, and will be working with our regulators as we do so.”

Royal Bank of Scotland Group PLC (NYSE:RBS) (LON:RBS) can expect to be examined very closely by the upcoming Bank of England stress tests, the results of which are to be published on 16 December.