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4th September 2014

Further capital raising for ECB banks

4th September 2014

Further capital raising for ECB banks

James McNeil

Posted: 4th September 2014

T: 023 8048 2108

E: Email Me

Reuters are reporting a Goldman Sachs Survey of large institutional investors who have come up with two interesting pieces of information regarding the latest European Central Bank stress tests.

The first is that that the investors expect that the results of the tests will means that the banks will need to raise an additional 51 billion euros ($67.02 billion) to be credible with markets and, secondly, that nine of the 130 banks being tested were expected to fail, with capital shortfalls most likely at Italian, German and Greek banks.

What is also important to note is that the stated figure of 51 billion euros which is needed already takes account of capital that banks have already raised, including 47 billion euros that they have raised since October. In fact the banks seen as most likely to fail include 6 that have already raised capital.

The survey indicates that perceptions of Greek, Central and Eastern European and Austrian banks have deteriorated most since October, the survey said while investors’ views on Spanish banks have improved. Their shares did not suffer on Wednesday, when the benchmark Stoxx Europe 600 banks index was up 1.32 percent by 1119 GMT.

However, three quarters of investors surveyed said they expected the exercise to be positive for bank valuations, with banks set to “outperform” the broader equities market once the results are announced.

It is clear that the ECB is attempting to finally draw a line under doubts about Eurozone lenders’ balance sheets in order to improve market confidence, but its also clear that the tests are themselves being closely looked at to see if they a produce a result which is in line with market expectations. It therefore appears that for the tests to be credible, there may have to be some further pain for EU banks. The question is of course, where does that leave us?

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James McNeil

Posted: 4th September 2014

T: 023 8048 2108

E: Email Me