October 17, 2013

Euro-zone banks face big capital shortfalls after next stress test - survey

LONDON (Reuters) - Investors fear euro-zone banks will have to find tens of billions of euros of new equity next year after another industry health check designed to draw a line under the financial crisis.


Details on the methodology for a third round of so-called stress tests in 2014 are sketchy and it is not clear what will constitute failure and how any capital shortfalls will be filled.

But euro-zone banks will likely need to raise between 20 billion and 50 billion euros ($27-70 billion), according to 41 percent of 146 investors surveyed by Morgan Stanley.

A fifth of the sample expected the shortfall to be in the range of 50-100 billion euros while 6 percent predicted 100-200 billion would be needed.

A tally of over 200 billion euros was expected by 1 percent. The bank said 30 percent of respondents - made up of equity investors as well as credit and foreign exchange market players - expected less than 20 billion euros would need to be raised.

The survey said banks in Germany, Italy and France were expected to fare worst in the tests but gave no explanation.

The European Central Bank plans to test the health of the euro zone's largest lenders by assessing the quality of their assets and then applying a stress test on the loans.

Results of the tests, which follow two previous exercises widely considered flops for a series of blunders, are expected to be released in late 2014. The survey said 42 percent of respondents expected between five and 10 banks to fail the test and 36 percent said 10-20 would fail, out of about 130 being tested.

A majority of respondents expected 5-15 banks to issue rights issues as a result. The survey showed 41 percent expect the asset review and stress test to bring more confidence to the bank sector, 35 percent see it as a non-event, and 24 percent expect it to be negative.

The vast majority expect it to have no impact on lending in the eurozone or affect the region's macro environment.

yahoo.com

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