Eight European banks are not strong enough to withstand a prolonged recession and need to raise 2.5 billion euros in capital, an industry health check aimed at reviving investor confidence showed on Friday.
The European Banking Authority said 16 other banks had core capital of between 5 and 6 percent and will have to take action to improve capital buffers.
LATEST COMMENTS
PEDRO DE NORONHA, MANAGING PARTNER, NOSTER CAPITAL
"This was nothing more than a PR exercise ... They fail to address the issue of what happens when one of the European sovereigns restructures and/or leaves the euro (and sadly that's a matter of when not of if as any person with basic math skills can easily figure out) ... you can't "stress test" the domino effect of such an event."
"The exercise is of little meaning because everybody knows that the results were not that "stressed.""
"The first one (stress test) was completely useless, and this is also useless. It's further reduced my confidence in regulators ... I want to know who the hell is paying, because I'm sure it's expensive and it's money wasted."
"The only solution is to impose very high Tier 1 capital ratios of 10 to 12 percent to the banks that are too big to fail."
"We have a lot of tail hedges in our portfolio, CDS on emerging marketsand five different European investment grade companies and we're short the euro."
EARLIER COMMENTS MICHAEL NOONAN, IRISH FINANCE MINISTER
"I am pleased to note that the three Irish institutions that participated in the stress test -- Allied Irish Banks, Bank of Ireland and Irish Life and Permanent -- have all passed on the basis of the actions under way to increase their capital position announced in my Statement on Banking of 31 March last.
"This increased capital requirement was identified in the Central Bank's Prudential Capital Assessment Review (PCAR) undertaken in the first quarter of 2011.
"It is important to note that the result of the EBA stress test for the three Irish institutions confirms the findings of the PCAR test and no additional capital requirement has been identified from the outcome of the exercise. The institutions will continue with the deleveraging and restructuring work which was set out in my March Banking Statement."
GEORG GRODZKI, HEAD OF CREDIT RESEARCH, LEGAL & GENERAL INVESTMENT MANAGEMENT, LONDON
"The stress test results were in line with leaked guidance and market expectations. Nonetheless, they are unlikely to be trusted or stabilize confidence in those banks which need it most, i.e. banks which are currently unable to fund themselves in wholesale markets at affordable costs."
RICHARD COOKSON, GLOBAL CHIEF INVESTMENT OFFICER, CITI PRIVATE BANK, LONDON
"Even with stress tests that are extraordinarily limited in their scope because they don't actually include the possibility of default, which seems a little peculiar given that's what policymakers are talking about at the moment, a number of the banks are either borderline or have failed so I don't really think these tests amount to a row of beans in themselves.
"The way to think about them is they put some more information in the public domain, but that's going to be still fairly limited. And given what we've seen in the peripheral bond markets in the last couple of weeks, they are out of date, even before they were released."
MARKUS HUBER, HEAD OF SALES AND TRADING, ETX CAPITAL, LONDON
"As already widely publicized, many experts considered the criteria applied for the test, like a decline of 15 percent in the stock market and a negative euro-zone growth of 0.5 percent, as insufficient and not realistic enough.
"Especially as things like a potential Greek default, which has not only become a real possibility in recent weeks but which has been dominating the headlines and market actions for many months now, has been omitted from the test.
"In light of this, the results are not really that relevant. It stands out that all Italian and Portuguese banks have passed the stress test. The market takes it in a positive way, partially as rumors were circulating that up to 21 banks have failed versus eight which actually did not make it .... But all or most of this means nothing if Greece would default and the fallout would spread to other countries under pressure especially Spain and Italy."
BRITAIN'S FINANCIAL SERVICES AUTHORITY
"We welcome the publication of the EBA stress tests which are an important part of ensuring market confidence and promoting market discipline.
"The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test, reflecting the work we and the banks have undertaken to improve resilience since the crisis."
RICHARD BARFIELD, DIRECTOR, PRICEWATERCOOPERS, LONDON
"The key benefit of this approach is that common standards were applied across Europe, compared to last year when Tier 1 numbers were used, a measure which is subject to differences across various countries.
"The rigor and consistency with which these were done was much stronger than last year. From the point of view of transparency, there is a remarkable amount of data here and banks may find it difficult not to make these kind of disclosures in future. (However,) it remains to be seen whether the stress tests will be disclosed in the same way in future and there is a likelihood that the EBA may want to follow suit with the Federal Reserve (which does not publish details for every bank)."
HANK CALENTI, HEAD OF BANK CREDIT RESEARCH, SOCIETE GENERALE, LONDON
"We're going to have to beat the numbers up now to see what's really there. We'll be focused on the banks (with core Tier 1 capital ratios) in the 5 to 7 percent range, as they'll have to be at 7 percent by January 2013.
"The amount of capital that needs to be raised by the (failed) banks fails to impress, but baked into that number are measures already taken through announced capital raisings. Any bounce from this will be short-lived."
AJAY RAWAL, SENIOR DIRECTOR, ALVAREZ & MARSAL, LONDON
"The EBA was widely criticized for not including a sovereign default scenario but this would have been a tacit admission that current actions will fail and, worse, probably would have been a self-fulfilling prophecy."
"The major banks in the UK are well ahead of the curve and the latest stress tests haven't revealed anything new. The biggest concern the UK banks face is what they will have to put in the ICB's proposed ring fence and the implications of having to hold the recommended Tier 1 capital cushion of 10 percent -- that's well above the stress test scenarios."
GERAUD MISSONNIER, TRADER AT SAXO BANQUE, PARIS
"All the Italian banks have passed the test. This is reassuring for the euro zone, and the overall number of banks that have failed the test seems somewhat lower than what the market had been expecting. Overall, we don't see much impact from this on the equity market, it's been priced in already."
FREDRIK NERBRAND, GLOBAL HEAD OF ASSET ALLOCATION, HSBC BANK, LONDON
"On a top-line basis it was pretty much in line with expectations. Having said that, the expectations weren't set very high, given the fact that the stress scenario isn't adverse enough to make the stress test really worthwhile. It wasn't going to show that very many people had failed."
MICHAEL SYMONDS, CREDIT ANALYST, DAIWA CAPITAL MARKETS, LONDON
"With only eight banks failing and the requirement for these banks to raise 2.5 billion in capital, it wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised.
"That being said, I don't think people really expected that outcome. But the solution to the wider sovereign/bank malaise in Europe needs to go beyond simply pumping more capital into the continent's banks. That's the underlying message, the solution's gone beyond that."
The European Banking Authority said 16 other banks had core capital of between 5 and 6 percent and will have to take action to improve capital buffers.
LATEST COMMENTS
PEDRO DE NORONHA, MANAGING PARTNER, NOSTER CAPITAL
"This was nothing more than a PR exercise ... They fail to address the issue of what happens when one of the European sovereigns restructures and/or leaves the euro (and sadly that's a matter of when not of if as any person with basic math skills can easily figure out) ... you can't "stress test" the domino effect of such an event."
"The exercise is of little meaning because everybody knows that the results were not that "stressed.""
"The first one (stress test) was completely useless, and this is also useless. It's further reduced my confidence in regulators ... I want to know who the hell is paying, because I'm sure it's expensive and it's money wasted."
"The only solution is to impose very high Tier 1 capital ratios of 10 to 12 percent to the banks that are too big to fail."
"We have a lot of tail hedges in our portfolio, CDS on emerging marketsand five different European investment grade companies and we're short the euro."
EARLIER COMMENTS MICHAEL NOONAN, IRISH FINANCE MINISTER
"I am pleased to note that the three Irish institutions that participated in the stress test -- Allied Irish Banks, Bank of Ireland and Irish Life and Permanent -- have all passed on the basis of the actions under way to increase their capital position announced in my Statement on Banking of 31 March last.
"This increased capital requirement was identified in the Central Bank's Prudential Capital Assessment Review (PCAR) undertaken in the first quarter of 2011.
"It is important to note that the result of the EBA stress test for the three Irish institutions confirms the findings of the PCAR test and no additional capital requirement has been identified from the outcome of the exercise. The institutions will continue with the deleveraging and restructuring work which was set out in my March Banking Statement."
GEORG GRODZKI, HEAD OF CREDIT RESEARCH, LEGAL & GENERAL INVESTMENT MANAGEMENT, LONDON
"The stress test results were in line with leaked guidance and market expectations. Nonetheless, they are unlikely to be trusted or stabilize confidence in those banks which need it most, i.e. banks which are currently unable to fund themselves in wholesale markets at affordable costs."
RICHARD COOKSON, GLOBAL CHIEF INVESTMENT OFFICER, CITI PRIVATE BANK, LONDON
"Even with stress tests that are extraordinarily limited in their scope because they don't actually include the possibility of default, which seems a little peculiar given that's what policymakers are talking about at the moment, a number of the banks are either borderline or have failed so I don't really think these tests amount to a row of beans in themselves.
"The way to think about them is they put some more information in the public domain, but that's going to be still fairly limited. And given what we've seen in the peripheral bond markets in the last couple of weeks, they are out of date, even before they were released."
MARKUS HUBER, HEAD OF SALES AND TRADING, ETX CAPITAL, LONDON
"As already widely publicized, many experts considered the criteria applied for the test, like a decline of 15 percent in the stock market and a negative euro-zone growth of 0.5 percent, as insufficient and not realistic enough.
"Especially as things like a potential Greek default, which has not only become a real possibility in recent weeks but which has been dominating the headlines and market actions for many months now, has been omitted from the test.
"In light of this, the results are not really that relevant. It stands out that all Italian and Portuguese banks have passed the stress test. The market takes it in a positive way, partially as rumors were circulating that up to 21 banks have failed versus eight which actually did not make it .... But all or most of this means nothing if Greece would default and the fallout would spread to other countries under pressure especially Spain and Italy."
BRITAIN'S FINANCIAL SERVICES AUTHORITY
"We welcome the publication of the EBA stress tests which are an important part of ensuring market confidence and promoting market discipline.
"The results support our own stress tests and we are pleased that the major UK banks have capital above the minimum required in the test, reflecting the work we and the banks have undertaken to improve resilience since the crisis."
RICHARD BARFIELD, DIRECTOR, PRICEWATERCOOPERS, LONDON
"The key benefit of this approach is that common standards were applied across Europe, compared to last year when Tier 1 numbers were used, a measure which is subject to differences across various countries.
"The rigor and consistency with which these were done was much stronger than last year. From the point of view of transparency, there is a remarkable amount of data here and banks may find it difficult not to make these kind of disclosures in future. (However,) it remains to be seen whether the stress tests will be disclosed in the same way in future and there is a likelihood that the EBA may want to follow suit with the Federal Reserve (which does not publish details for every bank)."
HANK CALENTI, HEAD OF BANK CREDIT RESEARCH, SOCIETE GENERALE, LONDON
"We're going to have to beat the numbers up now to see what's really there. We'll be focused on the banks (with core Tier 1 capital ratios) in the 5 to 7 percent range, as they'll have to be at 7 percent by January 2013.
"The amount of capital that needs to be raised by the (failed) banks fails to impress, but baked into that number are measures already taken through announced capital raisings. Any bounce from this will be short-lived."
AJAY RAWAL, SENIOR DIRECTOR, ALVAREZ & MARSAL, LONDON
"The EBA was widely criticized for not including a sovereign default scenario but this would have been a tacit admission that current actions will fail and, worse, probably would have been a self-fulfilling prophecy."
"The major banks in the UK are well ahead of the curve and the latest stress tests haven't revealed anything new. The biggest concern the UK banks face is what they will have to put in the ICB's proposed ring fence and the implications of having to hold the recommended Tier 1 capital cushion of 10 percent -- that's well above the stress test scenarios."
GERAUD MISSONNIER, TRADER AT SAXO BANQUE, PARIS
"All the Italian banks have passed the test. This is reassuring for the euro zone, and the overall number of banks that have failed the test seems somewhat lower than what the market had been expecting. Overall, we don't see much impact from this on the equity market, it's been priced in already."
FREDRIK NERBRAND, GLOBAL HEAD OF ASSET ALLOCATION, HSBC BANK, LONDON
"On a top-line basis it was pretty much in line with expectations. Having said that, the expectations weren't set very high, given the fact that the stress scenario isn't adverse enough to make the stress test really worthwhile. It wasn't going to show that very many people had failed."
MICHAEL SYMONDS, CREDIT ANALYST, DAIWA CAPITAL MARKETS, LONDON
"With only eight banks failing and the requirement for these banks to raise 2.5 billion in capital, it wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised.
"That being said, I don't think people really expected that outcome. But the solution to the wider sovereign/bank malaise in Europe needs to go beyond simply pumping more capital into the continent's banks. That's the underlying message, the solution's gone beyond that."
