A rally in bank stocks is possible after all but 14 of the banks passed an EU-wide stress test, a development seen to reduce systemic risk across the eurozone.
The banks passed as long as the capital they raised this year was included in stress-test calculations.
The stress test, carried out by the European Central Bank (ECB), covered 123 banks and is said to be positive for market sentiment, with fund managers predicting a rally in European banking stocks.
“All core eurozone banks passed with a reasonably large margin, and there were no narrow passes in the largest systemic banks,” says Philippe Bodereau, portfolio manager and head of global financial research at Pimco.
A larger number of banks, 24, failed the stress test if their capital raised from this year was not taken into account. Of these, nine were Italian banks, including the Banca Monte dei Paschi di Siena, the oldest surviving bank in the world, which had the largest capital shortfall in the survey.
There were three Greek banks in the list of 24, three Cypriot banks, one Irish bank, one German bank, one French bank and others. Together, the shortfall was €24 billion for the 24 banks that failed if capital raised this year was not taken into account.
The 14 that failed when capital raising was taken into account had a combined shortfall of €9.5 billion.
Paras Anand, head of European equities at Fidelity Worldwide Investment, says the survey suggests Europe’s banks are in “a much more robust place than many would have anticipated two years ago where concerns around the fragility of the eurozone was at its peak”.
He says deleveraging means the banking system is less tightly coupled than it was during the financial crisis and adds that the risk of cross-border contagion has declined thanks to the actions of the ECB.
©2014 funds europe
