WRAPUP 1-Focus shifts to EU banks to scrape test pass

* 17 banks just pass Europe’s stress test
* Postbank, Bankinter, Monte dei Paschi scrape through
* Investors will make up own mind if test seen too soft
* For full coverage see [ID:nLDE6601T6]
* Graph of biggest banks results: http://r.reuters.com/muj39m

By Steve Slater and Edward Taylor

LONDON/FRANKFURT, July 24 (BestGrowthStock) – So few banks failed
Europe’s long-awaited stress tests on Friday that investors will
likely focus instead on the dozen or so banks that just scraped
through when markets reopen next week.

Seven banks failed the unprecedented test of Europe’s
banking system — including five small regional Spanish lenders
— and need to plug a much smaller-than-expected combined
capital shortfall of 3.5 billion euros. [ID:nSGE66M07W]

But the health check on 91 banks in 20 countries was
criticised as being too soft. It was also overshadowed somewhat
by a slew of data on European economies that suggested the banks
may face less pressure and loan defaults than earlier thought.

That leaves investors to make up their own minds about
particular banks, armed with the extra data the tests provided,
including on sovereign bond holdings, to judge where further
weak spots may be. [ID:nLDE66M1A2]

“With so few banks failing, investors will question whether
the economic scenarios are sufficiently severe,” said Jon Peace,
analyst at Nomura in London.

“It will be natural for investors to consider the margin by
which banks passed,” he added, citing a good pass margin for
Scandinavian and British banks, but Greek, Spanish and Italian
banks faring less well.

Banks were tested on how they would withstand another
recession in the next two years, including some losses on
government bonds. They failed if their Tier 1 capital ratio
dropped below 6 percent.

There were 17 banks whose ratio fell to between 6 percent
and 7 percent. [ID:nLDE66M1T3]

They included Deutsche Postbank (DPBGn.DE: ), Greece’s Piraeus
Bank (BOAr.AT: ), Allied Irish Banks (ALBK.I: ), Italy’s Monte dei
Paschi di Siena (BMPS.MI: ) and UBI Banca (UBI.MI: ), Spain’s
Bankinter (BKT.MC: ) and eight smaller Spanish banks.

WEAK LINKS

Even in the hours before the results w
ere released National Bank of Greece, Slovenia’s NLB and Civica
in Spain all announced plans to raise capital.

Piraeus has already hired three investment banks to
underwrite a capital increase of more than 1 billion euros, a
Greek newspaper said on Saturday, although much of that may go
on the acquisition of state stakes in two other Greek banks.

Postbank, Germany’s largest retail bank by clients,
identified its own capital shortfall months ago. The Bonn-based
lender last year took drastic measures to improve capital,
including scrapping its dividend, cutting staff and shrinking
assets. It said it will continue with the overhaul.

Franz-Christoph Zeitler, Bundesbank’s vice president, said:
“In the regulators’ view no other German bank (other than Hypo
Real Estate) needs further capital as the level of 6 percent is
clearly above the regulatory minimum, but the markets could see
that differently.”

Italy’s smaller banks will also come under scrutiny.

“As we expected, bigger banks have higher capital ratios,
while the market will probably say that banks such as Monte dei
Paschi and Banco Popolare (BAPO.MI: ) still lack adequate ratios,”
said Centrosim analyst Luca Comi.

ACCESS TO FUNDING?

A main aim of the test was to open up funding markets for
banks who have been shut out in recent months. Those still
deemed too risky could still have problems unless they raise
more capital.

“This isn’t necessarily the last word, and if funding costs
do not improve for some banks then we would not be surprised to
see additional stress tests by some national central banks in
the future,” Nomura’s Peace said.

Europe’s so-called “stress tests” were never expected to
show massive capital shortfalls, as its banks have also already
raised about 300 billion euros since the start of the crisis.
That includes about 170 billion euros of government support to
34 banks.

Just as investors take a view when markets reopen on Monday,
Central bank governors and heads of supervision will meet in
Switzerland to review proposed capital reforms, and the
resilience shown by Europe’s banks could make it harder for them
to argue they cannot implement tough new rules.

“The banks are ready to start implementing the new rules
which are necessary to reinforce the capital provision and
liquidity management of the banks,” Vitor Constancio, ECB Vice
President, told Reuters Insider after Friday’s results.

Stock Investing

(Additional reporting by Philipp Halstrick, Huw Jones,
Antonella Ciancio and Angeliki Koutantou; editing by Patrick
Graham)

WRAPUP 1-Focus shifts to EU banks to scrape test pass