The 2011 stress tests for 91 of the regions top lenders that will be published by the European Banking Authority (EBA) at 1600 GMT today could, in fact, hinder a sovereign debt recovery, says Swiss & Global Asset Managements head of investment management.
There is mounting concern in Europe about this second and more granular bank stress testing, which is supposed to build broader market confidence by clearly isolating and identifying weak spots in the financial system, says Stefan Angele, Head of Investment Management, Swiss & Global Asset Management. Amid the current mood, it could worsen the sovereign debt crisis in the eurozone and encourage even more speculation against financial institutions.
There are currently rumours that as many as six Spanish banks have failed the European stress tests, including five savings banks and one medium-sized bank.
These banks may have failed the tests, as generic provisions – cash put aside by the banks to cover potential losses – would not be counted as core capital, says Angele. It is interesting that especially German banks have attacked the publication of detailed information about their holdings in the new report, despite expectations that most of these banks will pass these tests. Meanwhile, Italian and French banks do not seem to share the German concerns.
Equity markets corrected sharply after Italy came into focus due to contagion fears in the European debt crisis. They did not manage to recover as the week progressed. In contrast, Swiss, German and US bonds rallied, confirming their role as safe haven investments in times of uncertainty, even amid the ugly debate about the US debt ceiling. Gold reached a new high just below USD1600/oz, while the euro fell to a new low of 1.15 against the Swiss franc.
(LB)