TOPWRAP 5-EU banks could seek 25 bln euros in capital top-up

* Europe bank shares up 0.4 pct, wider market weaker

* Investors say tests too soft, but like transparency

* Sovereign risk disclosure helps outweigh doubts

* Extra 27 bln euros needed if Tier 1 minimum was 8 pct

* Germany criticised for less disclosure; D.Bank down 1 pct

(Writes through with Spanish cajas, analyst comments)

By Sudip Kar-Gupta and Joel Dimmock

LONDON, July 26 (BestGrowthStock) – European banks who only just
scraped through a health check could look for over 25 billion
euros in new capital, while Spain’s smaller lenders set out to
reassure investors on Monday that they too can raise funds.

Of the 91 banks tested, seven failed, including five from
Spain, and another 17 barely passed the EU tests which have been
widely criticised as not demanding enough.

The tests were aimed partly at opening the door to funding
markets for a batch of southern European banks and lowering
costs for other lenders, and analysts said it would make sense
for banks to seek to raise the capital they would have needed
had the test criteria been tougher. [ID:nLDE66N02E]

“Those that are at the margin may as well raise equity to
dampen down fears … The sums of money involved are really
relatively small,” said Ian Henderson, who runs a global
financials fund for JP Morgan.

“We can navel gaze until we’re blue in the face about this
(stress test process). Most people are going to be absolutely

Results announced on Friday showed the seven that failed
need to raise just 3.5 billion euros ($4.5 billion), far less
than expected.

But if the minimum pass mark had been set at a Tier 1
capital ratio of 8 percent, rather than 6 percent, banks would
have needed an extra 27 billion euros ($35 billion), analysts at
Morgan Stanley estimated. About 40 percent of that would have
been for German and Italian banks.

A 7 percent hurdle rate would have meant an extra 8 billion

Or if losses on sovereign debt that banks are assumed to
hold to maturity were included — as critics said should have
happened — then 23 banks would have failed, needing 15.5
billion euros, according to analysis by Reuters BreakingViews.
Graphic on biggest bank results:
For Take-A-Look on stress test stories: [ID:nNN2516007]


The Spanish Confederation of Savings Banks (CECA) said its
smaller regional savings banks, known as cajas, would be able to
raise capital this year if needed, as it kick-started a roadshow
in London aimed at reassuring investors. [ID:nLDE66P0AY]

“There is a lot of interest,” Jorge Gil, managing director
of CECA told Reuters Insider.

“The timeframe is pretty much anticipated to be within the
year 2010. The raising of the equity should be in the coming
months, it should be pretty quick.”

Credit markets showed an improvement in banks’ funding
costs, but the real test will come when second and third tier
banks try to move away from dependency on central bank funding.

Europe’s banking index (.SX7P: ) was up 0.4 percent in a
generally weaker stock market by 1350 GMT while the euro, driven
last month to below $1.19, its lowest since 2006, was little
changed on the day at around $1.29.

Analysts said while the test generally underwhelmed, the
level of detail on holdings was a boon and could help Europe
achieve its aim of repeating the boost given to U.S. banks early
last year from a health check on that sector.

Even some U.S. banks to “pass” that test raised cash to
reassure investors, analysts noted.

German banks, including Deutsche Bank (DBKGn.DE: ), were
criticised for not providing as much information as rivals about
their exposure to sovereign debt in the euro zone — the major
worry that prompted the tests. Shares in Deutsche Bank, which
also owns just under 30 percent of Postbank, were down 1
percent, the weakest of the top names.


Some of the banks to squeak past the official test are
already making strides to raise capital, including Italy’s Banca
Monte dei Paschi di Siena (BMPS.MI: ) and Banco Popolare
(BAPO.MI: ), so they are unlikely to need more government aid.

Deutsche Postbank (DPBGn.DE: ), Germany’s largest retail bank
by clients, said it will continue with a plan to rebuild
capital, included halting dividends.

As for the Spanish cajas, their problems have long been
flagged and are being remedied, led by the government.

European banks have already raised about 300 billion euros
since the start of the crisis — including 34 banks taking 170
billion euros from governments — whereas the U.S. tests were
conducted much earlier in the cycle and kick-started the

The subdued response to the tests in Europe was a far cry
from early May when global markets feared Greece’s debt crisis
might spread like wildfire through Europe and beyond.

Stronger-than-expected economic data suggesting the euro
zone will avoid a double-dip recession, despite fiscal austerity
measures, have also helped revive investor confidence in Europe.

The credit market, which partially froze at the height of
the euro zone debt crisis and has remained tight on fears banks
have been hiding exposures, reacted positively. The Markit
iTraxx European senior financials index tightened by 5 basis
point to 126, compared to 164 at the start of the month.

Investors chastised EU authorities for refusing to test the
impact of a debt default by Greece. But European Central Bank
governing council member Christian Noyer said euro zone states
“have put several hundreds of billions of euros on the table
with the support of the IMF to make this hypothesis completely

Stock Trading

($1=.7746 Euro)
(Additional reporting by Steve Slater, Bill Tarrant, Alex
Chambers, Ian Simpson, Paul Taylor; Editing by Ruth Pitchford)

TOPWRAP 5-EU banks could seek 25 bln euros in capital top-up