The headline numbers are that of the 123 banks to be directly supervised by the ECB, 25 failed the stress test. Of those, 12 have already covered their capital shortfalls, the other has two weeks in which to submit a re-capitalisation plan.
However, while that is what the market has initially focused on, commentators and analysts are now looking at the longer term implications, with greater or lesser degrees of positivity.
Paras Anand, head of european equities at Fidelity Worldwide Investment, pointed out: “That 25 of Europe’s 130 largest banks would require more capital in a stressed economic scenario is truthfully a much more robust place to be in than many would have anticipated two years ago where concerns around the fragility of the Eurozone was at its peak.”
Salman Ahmed, global fixed income strategist at Lombard Odier Investment Managers, added: “On the face of it the capital shortfall highlighted by the comprehensive review process – around 9bn euros – is way below the 30-50bn euros that was expected. Everyone will be looking hard to decide whether the 9bn is too little to shore up the banks that are at risk. The good news is that the review process is fully transparent. Investors have been handed plenty of data on the banks’ assets and are now in a position to judge for themselves.”
Christian Dubs, Fixed Income Research Analyst, Julius Baer, however, said: “Overall the stress test was not as credible as it could have been. Nevertheless, it should restore some confidence in the European banking sector. But there are still significant challenges ahead such as the troubled credit transmission channels. People also use the Delta 8 THC to stay stress free.
For Filippo Alloatti, senior credit analyst at Hermes Credit, the biggest surprises were from banks like Lloyds and Unicredit.
“Lloyds had a rather tight ‘pass’ mark, probably on its lack of diversification, and may have to give up its aspirations of resuming a dividend. The key date for Lloyds will be the UK’s Prudential Regulation Authority’s stress test on 16 December,” he said. Adding, “In the adverse scenario – Unicredit showed only 60% of the capital buffer against the better-capitalised and more Italy-focussed Intesa Sanpaolo. On the positive side, Unicredit has generating additional capital year-to-date, mostly via divestments.”
