Europe's Stress Tests

HenryTo · Posted: Sun Sep 27, 2009 12:13 am Post subject: Europe's Stress Tests

The European Union will release its own version of the stress tests in the next few days. Early estimates put the total 2009 and 2010 banking losses to be about €400 billion, or US$580 billion. Note that the IMF will also release its "Financial Stability Review" this Wednesday:

http://www.nytimes.com/2009/09/26/business/global/26banks.html?adxnnl=1&ref=global&adxnnlx=1254031609-d3tDdhlmKWPOp4NYXrVQdQ

HenryTo · Posted: Wed Apr 18, 2012 11:49 pm Post subject:

Obviously, the European stress tests didn't work too well--insofar as they were trying to prevent further mass deleveraging. IMF anticipating a sale of $2.6 trillion in bank assets by the end of next year unless further equity injections are made into European banks.

http://www.ft.com/intl/cms/s/0/00078672-8952-11e1-bed0-00144feab49a.html#axzz1sSj0FmgV

rffrydr · Posted: Thu Feb 16, 2012 6:38 am Post subject:

Of course the unintended consequences of putting safety first is that everything else becomes endangered. These results from SocGen showcase the grand dump of dollar assets 2H 2011...and go a long way towards explaining the "conundrum" relative strength of the euro.

http://ftalphaville.ft.com/blog/2012/02/16/884311/a-fistful-of-legacy-dollars-at-socgen/

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rffrydr · Posted: Thu Nov 10, 2011 3:49 pm Post subject:

And guess where this money is going? Euro-bank deposits:

http://blogs.wsj.com/marketbeat/2011/11/10/heres-one-reason-the-euro-hasnt-gotten-crushed/?mod=WSJ_qtoverview_wsjlatest
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rffrydr · Posted: Thu Oct 27, 2011 9:43 am Post subject:

Really?!

http://ftalphaville.ft.com/blog/2011/10/27/713866/but-what-does-mrs-watanabe-think/

Isn't this just proving the opposite? This is a good example of the kind of "blind rage" that comes of hysteria. Of course the double-pincer effect that got us here in the first, after a sprinkling of leverage, was entirely unforeseen--by the models. Twisted Evil

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rffrydr · Posted: Wed Oct 19, 2011 4:54 pm Post subject:

Oh, forgot.....it's ALL the sovereign debt which must be marked to market:

http://ftalphaville.ft.com/blog/2011/10/19/706651/gilt-stuffed-and-shrinking-euro-banks-capital-hole/
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rffrydr · Posted: Wed Oct 19, 2011 10:45 am Post subject:

It's not the banks (for the most part). It's the union--the unity.
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HenryTo · Posted: Tue Oct 18, 2011 10:57 pm Post subject:

Bridgewater on Europe's stress tests:

rffrydr · Posted: Wed Oct 12, 2011 9:05 pm Post subject:

The "FT" effect:

http://ftalphaville.ft.com/blog/2011/10/12/700706/is-there-such-a-thing-as-the-ft-effect/
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rffrydr · Posted: Fri Oct 07, 2011 8:22 am Post subject:

This would be comical if it weren't so painful. Moody's "surprise" downgrades Brit banks on account of no (more) govt. backstop while govt. owned RBS gets dragged into new EU stress tests--which, because one size doesn't fit all, it will fail BY DEFINITION.

This is just the viscous loop described right here in MT in '08 brought to bear once again. This time however we (are supposed to) know better. Yet these institutions clank right along pushing their own small gears as if it was they alone were the motor pushing the ship.

Shorting Hedge Funds may really have their eye's on the forced rights offerings--which govts (pensions?), like already seen in Ireland, will eventually join and feast on the all the dead capitalists. I'll be there too if it happens.

rffrydr · Posted: Mon Jul 18, 2011 10:07 am Post subject:

RBS's take via Alphaville:

The publication of the EBA stress test results last Friday provided a wealth of useful information to the market, increasing the transparency of the banking system in Europe. But we are of the view its role in the broader context of the current debt crisis is secondary and less relevant than the first stress-test release.
The key point is that the banking system in Europe has some pockets of weakness, but the crisis has reached a truly systemic stage as the once widely accepted view that contagion would be limited to small countries has proven to be a false hope.
NH
This week the market’s focus will be on the upcoming EU summit, scheduled for Thursday, 21 July.
Recently we argued that the situation is likely to continue deteriorating, to the extent that the entire euro area will be threatened. We believe the recent stresses in the EGB market have galvanised opinion sufficiently for a policy response. However, we do not expect this response to be the one that would turn sentiment for a sustained period. Indeed, we believe the EU summit to be almost solely targeted at Greece rather than at the whole system.
NH
Still, we think a more innovative and forceful response on Greece will likely be treated favourably by risk markets as it could lead to a significant reduction in its debt to GDP, something markets have been begging for some time.
However, we are treating this upcoming policy announcement in the same way that we dealt with the Greek parliamentary vote; we expect a short-lived positive effect on confidence.

The market currently expects the details of the new deal for Greece to include a combination of buybacks, new loans, loan interest rate cuts and PSI, with some of these initiatives consistent with a Greek debt downgrade to SD or D by rating agencies.
NH
A policy announcement centred on Greece that bring about a notable debt/GDP decline in an orderly fashion is likely to be seen as positive from the investors’ perspective because it will boost expectations that the Greek fiscal dynamics are more viable in the medium term. Such an announcement would also have positive externalities for other countries, especially Ireland and Portugal. For example, a clearing price for any rollover / debt exchange etc. will be interpreted as a floor for other countries given that Greece is widely seen as the worst country, and we do not expect aggressive treatment here.
NH
In the event that an announcement addressing Ireland and Portugal (in line with prospective Greek relief) is delivered at the same time on Thursday this will also be seen as a positive as it signals that Europe is starting to address the issues in a more systemic and holistic fashion. Taken together, this is likely to have positive spill over effects for Spain and Italy, at least in the near term.
Focus instead on the regime shift of just what it means to invest in EGBs – this points to a crisis that will get much worse
The elephant in the room however is the insistence by a number of countries that the private sector should take some of the burden via the Private Sector Involvement (PSI). It is at this time unknown just how this will be executed1 and the amounts that are likely to be saved via the PSI look moderate (with talk of near €20 bn) but the key facts remain that this would be a landmark signal that
NH
That core EMU is not willing to provide a benevolent lender attitude to Europe’s problems
RBS Research & Strategy | 18 July 2011

The politics of core EMU countries has turned to a protection their own very narrow domestic fiscal impacts and electoral concerns

If any country needs external funding assistance then haircuts (whether defined as voluntary or not) are integral to the solution.
It is the latter point that is likely to see the debt markets in larger periphery countries such as Spain and Italy worsen on a trend basis. Put simply, we do not believe that the market can stabilise around the view that the probability of a bailout requirement in either case will be static or lower given long lived concerns on issuance absorption, weak growth, ambitious budget targets, domestic financial fragility, political fragility, and the numerous contagion channels from what is still likely to be a high default risk in Greece
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rffrydr · Posted: Sun Jul 17, 2011 11:44 pm Post subject:

And they have...and they're all over the map. "Transparency" is a myth. Lehman was an asset right up to the minute it was a liability. US Stress tests worked insofar as they put numbers on what was a black hole of fear.... although Roubinni/Whitney had other ideas later.
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HenryTo · Posted: Sat Jul 16, 2011 1:34 am Post subject:

Morningstar on the latest European bank stress tests:

http://news.morningstar.com/articlenet/article.aspx?id=387355

rffrydr · Posted: Mon Apr 18, 2011 8:10 am Post subject:

A fringe party from Finland--talk about left-field. It's hard, sometimes really hard. But someone will get this in front of them in any case:

http://www.economist.com/node/18560535?story_id=18560535
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rffrydr · Posted: Wed Feb 16, 2011 9:07 am Post subject:

SocGen results, on the heels of Barclay's, reminding the market that these institutions are too big NOT to own. Evolution's markup as per Alphaphille:

rffrydr · Posted: Mon Feb 07, 2011 11:45 am Post subject:

Olivetree update to "save europe" conference this week:

EUROPEAN BANKS – EU Stability Fund – A key weekend – we remain cautious

– EU Leaders meet this weekend to flesh out discussions on the stability fund – market has seemingly priced in a positive resolution.
– Market seems to be pricing in following:
* EFSF able to disburse full E440b (rather than c.E250b currently) due to additional guarantees.
* Ability for stability fund to help countries buy back debt allowing Greece to potentially reduce debt burden.
* Reduction in debt costs for Ireland (5.8%) and Greece (5%) allowing greater fiscal flexibility.
* Potential for EFSF to provide credit lines direct to countries and providing Portugal with stability funds.
* Tougher fiscal policy rules set for Eurozone.
– Considering that EU Banks rallied 11% from January lows, outperforming the market by 7.5% we think alot of the potential announcements priced in.
– In particular with the sector on 8x 2012 EPS and 1.1x TBV facing downgrades across Southern Europe, higher wholesale funding costs and higher capital requirements we believe the valuations are not as attractive as they initially appear and would be wary of being dragged into the current rally.
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