European Bank Stress Test Results in, 7 of 91 EU Banks Fail

07/23/10 Washington, DC — The European Union bank stress test, which included 91 banks or about 65 percent of the EU banking sector, has resulted in seven failures: five Spanish, one Greek, and one German institution were unable to earn a passing mark… with a combined $4.5 billion shortfall. They are as follows:

* CajaSur (Spanish)

* A Caixa Catalunya group (Spanish)

* A Caixa Sabadell group (Spanish)

* Caja Duero-Caja Espana (Spanish)

* Banca Civica (Spanish)

* Agricultural Bank of Greece SA (Greek)

* Hypo Real Estate Holding AG (German)

As expected, right out of the gate the credibility of the stress test is being called into question.

According to Bloomberg:

“Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks have insufficient reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis, lenders and regulators said today…

“…’The amount of capital needed is much lower than the market expected,’ said Mike Lenhoff, London-based chief strategist at Brewin Dolphin Securities Ltd., whose parent company oversees $33 billion. ‘The amount does seem quite trivial considering the concerns about losses from the sovereign crisis.’ [...] estimates for the amount banks would need to raise ranged from 30 billion euros at Nomura Holdings Inc. to as much as 85 billion euros at Barclays Capital. Tests carried out in the U.S. last year found 10 lenders including Bank of America Corp. and Citigroup Inc. needed to raise $74.6 billion of capital.

“…’The long awaited stress tests do not seem to have been that stressful after all,” said Gary Jenkins, an analyst at Evolution Securities Ltd., in a note. “The most controversial area surrounds the treatment of the banks’ sovereign debt holdings.”

As the article also points out, one of the main reasons the banks looked better than expected is the test focused on government bonds the banks actively trade, as opposed what’s actually a greater share of bank holdings, the sovereign debt held to maturity. We’ll be sure to keep you posted on additional weaknesses in the bank test as they emerge.

You can read more of the details in Bloomberg coverage of how seven EU banks failed the stress tests with a $4.5 billion shortfall.

Best,

Rocky Vega,
The Daily Reckoning

Rocky Vega

Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.

View articles by Rocky Vega

The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.

Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!

We Respect Your Privacy and We will
Never Share or Sell Your Email Address