Countries upbeat on Europe bank tests

By Steve Slater and Lefteris Papadimas

LONDON/ATHENS (BestGrowthStock) – Bankers and officials in Greece, Spain and Belgium joined a chorus of countries expecting their banks to pass European stress tests, but doubts linger over whether the health checks are tough or transparent enough.

Europe is assessing how 91 banks across 20 countries would cope with another economic downturn in an effort to restore confidence after Greece’s sovereign debt crisis hit markets and sparked fears the euro zone could unravel.

With banks exposed to major potential losses on Portuguese, Greek or Spanish government debt, the crisis has hurt confidence in big names such as Santander, and shut smaller lenders, especially in southern Europe, out of funding markets.

The Committee of European Banking Supervisors (CEBS), which is overseeing the stress tests, said results would be released on an aggregated and bank-by-bank basis from 1600 GMT on Friday.

“The intention is that it provides reassurance to investors … the test is helpful but I do not think it is a panacea for providing that boost of confidence that regulators and politicians are hoping for,” said Nick Brind, fund manager of the Hiscox Investment Management Income Fund.

“I do not think it is necessarily stringent, I do not think is transparent or that it will provide any more visibility.”

The vast majority of banks are expected to pass and the aim is to pinpoint weak spots and force weaker banks to raise cash.

But Moody’s decision to cut Ireland’s credit rating on Monday and the collapse of Hungary’s deal with international lenders suggest that success with the stress tests will not spell the end of Europe’s debt problems.

Europe wants to repeat the success of last year’s U.S. stress tests, which were moderate but provided real data about possible losses and boosted stock markets. However, early splits within the 27-member European Union about how to model the tests and how much to divulge have undermined efforts.

EU officials have agreed the key criteria of the tests, but analysts now fear that they will not be consistently applied, with national regulators differing on what qualifies as core capital, for example.


Regional Spanish cajas, Germany’s landesbanks and Greece’s bank sector top the list of those most likely to need capital under a stressed scenario, but bankers and officials have scrambled to assure markets lenders on their patch will pass.

Greece’s finance minister said six Greek banks being tested will pass, echoing comments by the central bank chief over the weekend and helping lift domestic bank shares.

Belgium’s KBC and Dexia have passed, two Belgian newspapers said at the weekend.

Spain’s Confederation of Savings Banks said the country’s banks and cajas would get no nasty surprises either, but its head, Jose Antonio Olavarrieta, did not rule out lenders having to seek more capital from the central bank restructuring fund.

Olavarrieta said in an interview with ABC newspaper he hoped the tests would help improve conditions in money markets, which have shut out smaller Spanish banks.

Barclays Capital analysts estimated the capital needs of the cajas at 36 billion euros, 34 billion euros for the landesbanks and 8.6 billion euros for Greek banks.

“(Saving banks) are the ones the market is more concerned about because they have been accessing the wholesale markets and are very much part of the local financial system,” Ian Henderson, fund manager JP Morgan Global Financials fund, said.

“The idea of the stress test is to reassure Asian sovereign wealth funds investing in paper issued by these savings banks that in fact they are not buying a lemon. They want some confidence to be restored to the system.”

Investing Basics

(Reporting by Cecilia Valente in London, Philip Blenkinsop in Brussels, Nigel Davies in Madrid; Editing by Lin Noueihed)

Countries upbeat on Europe bank tests