Home' Trinidad and Tobago Guardian : November 8th 2015 Contents NOVEMBER 8 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
Europe's banks will be
tested next year to measure
their financial resilience if
the economy shrinks, regu-
lators said on Thursday,
although none can fail as
there will be no minimum
The exercise follows many
years of annual tests to assess
the capital strength of the
banks following the financial
crash, but it marks a new
phase where banks are not
immediately forced to recog-
nise and plug any new-found
Some criticised earlier
tests as too lenient; Irish
lenders, for example, were
given a clean bill of health
just months before the coun-
try almost went bust due to
their difficulties. Greece's
banks received a thumbs up
as recently as last year before
political turmoil prompted a
fresh examination last week.
Fifty-three banks will be
assessed in the latest round
of checks, to be launched in
February next year. The
European Banking Authority,
which sets the standards for
the examination, said the
process would challenge
banks' capitalisation plans.
authority said it would also
make it easier to compare
the resilience of banks across
the European Union. The
European Central Bank will
probe banks in 10 of the 19
countries using the euro.
Unpaid loans remain a
problem for Europe's lenders,
as economic growth in many
countries grinds to a halt.
In Greece, the four top
banks have more tan 100 bil-
lion euros of credit that is at
risk of not being repaid.
Earlier in the week,
Daniele Nouy, the ECB's
chief banks watchdog, gave
a sense of the focus of super-
vision. She said the euro
zone central bank wanted to
ensure banks have viable
business models and can
loans at risk of not being
repaid, singling out property
"The economic climate in
the euro area poses chal-
lenges to banks' profitability,"
Nouy said. "We know that
some of the banks within the
euro area still face significant
Volkswagens can be fitted with a
nifty feature that takes control of
a car's brakes after an accident
to slow it down and help avoid
subsequent collisions. If only the
carmaker itself were equipped
with a similar device.
In September the firm admitted having rigged
11 million diesel vehicles worldwide to cheat tests
for emissions of nitrogen oxides. American reg-
ulators now say that more vehicles have been fitted
with test-tricking software and, on November 3,
VW confessed that it had overstated claims about
the carbon-dioxide emissions and, thus, fuel effi-
ciency of 800,000 cars; including, it seems, some
with gasoline engines.
VW is vague about its latest misdeeds, referring
to "irregularities" in CO2 levels during testing.
That suggests, however, that the cars' software
suppressed emissions in tests before reverting to
a more polluting mode in normal driving condi-
Nor does VW reveal how many of the cars with
CO2 problems are among the 11 million that cheated
the NOx tests. Presumably the cars are in Europe,
since America measures fuel efficiency directly,
not CO2 as a proxy for it. Because the "majority"
of the cars are said to be diesel, this suggests that
some run on gasoline.
VW reckons that fixing the CO2 problem will
cost another US$2.2 billion on top of the US$7.37
billion it put aside to cover recalling and fixing
cars with the NOx test-cheating software. Having
already fallen by a third since the scandal engulfed
the company, VW's share price slipped further in
the first day of trading after the latest revelations.
The falls reflect the costs of fixing the cars affect-
ed, the mounting damage to VW's reputation and
the fear that its new bosses are struggling to contain
VW's third-quarter results, released at the end
of October, showed that its sales have not yet suf-
fered much as a result of the scandal; though it
can look forward to more bad publicity to come,
including lawsuits and possibly the American
indictments of senior managers.
The latest chapter threatens to have a more seri-
ous impact. Fixing cars with the NOx problem is
likely to mean that their fuel efficiency goes down,
but only if their owners choose to have them fixed.
Those cars with the CO2 problem have already
forced their owners to spend more on fuel than
they may have expected. VW's reputation for good
mileage is likely to be dented.
There is no easy means of fixing cars that spew
out additional CO2 because they burn more fuel
than during the tests. VW will have no recall costs
in this case. However, customers surely will seek
compensation for their extra spending on fuel and
for the falling secondhand value of their vehicles.
If some of the cars' supposedly low emissions took
them into a low-tax category, governments may
come knocking at VW's door demanding reim-
bursement of lost revenues.
Exane BNP Paribas, a bank, reckons that all the
scandals will together cost VW US$17 billion rather
than the US$9.5 billion so far put aside. This does
not include fines and other legal liabilities, which
the bank puts at US$16.3 billion. Lawsuits from
shareholders could add more to the bill.
As costs continue to mount, the financial pressure
on the company is ratcheting up. Moody's, a rating
agency, downgraded VW on Nov. 4, citing the cost
and time it will take to put things right and restore
the company's image. The agency also criticised
the way VW has been run, a situation that it urges
the company to "address aggressively in the coming
VW has said little about how it intends to fix
itself, beyond some promises to cut costs and
Pressure is mounting on its new boss, Matthias
Muller. Shortly before VW's latest confession,
American regulators claimed that software to cheat
NOx tests also had been fitted onto some of VW's
Porsche and Audi models with engines larger than
those already implicated in defying the testing
regime. Though VW denies the charge, it has halted
sales of the cars in America. The accusation casts
a shadow over Muller, who was boss of Porsche,
VW's sports-car arm, before taking over the whole
Parochial and insular, VW never was likely to
appoint an outsider to replace Martin Winterkorn,
who resigned as CEO shortly after the scandal
broke. It is unclear, however, that someone so inti-
mately involved with VW can engineer the upheaval
in corporate culture that is required.
As the crisis rumbles on for VW, the most wor-
rying news for the rest of the car industry is that
gasoline engines, fuel efficiency and CO2 emissions
in the European Union also are under closer scrutiny.
They can take some comfort that, at the end of
October, governments seeking to protect their
national carmakers ensured that new EU tests
designed to more closely resemble real-world driv-
ing, to be introduced in 2017, will allow diesels to
emit twice the current "maximum" NOx levels for
a time and 50 per cent more forever.
Given widespread gaming of the existing regime,
though, there are suspicions that VW was not
alone in breaking, not merely bending, the rules.
If so, the unmasking of others is surely a little
@2015 The Economist Newspaper Ltd. Dis-
tributed by the New York Times Syndicate
none can fail
fuel on the fire
Links Archive November 7th 2015 November 9th 2015 Navigation Previous Page Next Page