Whilst successfully passing the stress tests en July, The National Bank of Greece EUR 2.8 billion capital raising announcement this week confirms the lack of credibility of the tests.

1. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Europe’s bank stress tests: Follow-up
On September 7, the WSJ published an article which outlined why the criteria used for the
91 European banks stress tests minimized the debt risk in their portfolios. In particular it
pinpointed discrepancies between data published by the BIS and the stress
tests. The CEBS did respond to the article, unconvincingly however. If transparency was
real one should be able to reconcile the numbers or at least explain the differences.
There is however a series of information that corroborate a widespread skepticism about
these politically motivated tests triggered in July in a panicky mood which I expressed at
the time of their release (Europe’s banks stress test: not really stressful…).
1. Among the five Greek bank tested only one failed. The National Bank of Greece
successfully passed the tests with a 9.6% tier 1 capital ratio in the adverse
scenario and 7.4% if a sovereign shocked was to occur, well above the 6% required.
This week, the very same bank announced plans to raise EUR 2.8 billion
via an asset sale (EUR 1 billion) and a combination of equity and convertible bonds
(EUR 1.8 billion); these EUR 2.8 billion are to compare to the EUR 3.5 billion
that the 7 banks that failed the tests had to raise… European politicians and
regulators are lacking credibility indeed.
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2. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
2. Portuguese banks increased their borrowing (+0.6% August/July) from
the ECB to reach EUR 49.1 billion. This is another sign of the failing health of
Europe’s banking system. Irish, Spanish and Greek banks are also reliant
on the ECB for funding.
3. In July, the European Central Bank loaned 132 billion euros for three months to 171
financial institutions. ECB President Jean-Claude Trichet on Sept. 2 extended
emergency lending measures for banks into 2011. The ECB has bought €61bn in
government bonds – mostly of the weaker eurozone economies of Greece, Ireland
and Portugal – since it launched its intervention program on May 10 as part of the
multibillion-euro international bailout.
All this has resulted in a surge in the risk premium the market is asking to hold PIIGS debt
which are moving towards their record highs.
And with Basel III more stringent capital ratios to be discussed at the
November 11-12 G20 meeting in Seoul, I continue to stay clear from European
banks.
Source:
The Wall Street Journal: Europe's Bank Stress Tests Minimized Debt Risk
http://online.wsj.com/article/SB10001424052748704392104575475520949440394.html
?mod=WSJEUROPE_hps_LEFTTopWhatNews
Markets & Beyond: Europe’s banks stress test: not really stressful…
http://marketsandbeyond.blogspot.com/2010/08/europes-banks-stress-test-not-
really.html
The Financial Times: ECB steps up eurozone bond buying
http://www.ft.com/cms/s/0/a70e9b82-bb76-11df-a136-00144feab49a.html
The Financial Times: Portugal suffers as lending costs soar
http://www.ft.com/cms/s/0/0e3b7f1a-baa9-11df-b73d-00144feab49a.html
Bloomberg: Europe's Banks Stressed By Sovereign Debts Regulators Ducked
http://www.bloomberg.com/news/2010-09-06/europe-s-banks-stressed-by-sovereign-
debts-eu-regulators-failed-to-examine.html
Committee of European Banking Supervisors: 2010 EU Wide Stress Testing
http://www.c-ebs.org/EuWideStressTesting.aspx
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