Eight European banks are not strong enough to withstand a prolonged recession and need to raise 2.5 billion euros in capital, an industry health check aimed at reviving investor confidence showed on Friday.
The European Banking Authority said 16 other banks had core capital of between 5 and 6 percent and will have to take action to improve capital buffers.
HANK CALENTI, HEAD OF BANK CREDIT RESEARCH, SOCIETE GENERALE, LONDON
We're going to have to beat the numbers up now to see what's really there. We'll be focused on the banks (with core Tier 1 capital ratios) in the 5 to 7 percent range, as they'll have to be at 7 percent by January 2013.
The amount of capital that needs to be raised by the (failed) banks fails to impress, but baked into that number are measures already taken through announced capital raisings. Any bounce from this will be short-lived.
AJAY RAWAL, SENIOR DIRECTOR, ALVAREZ & MARSAL, LONDON
The EBA was widely criticized for not including a sovereign default scenario but this would have been a tacit admission that current actions will fail and, worse, probably would have been a self-fulfilling prophecy.
The major banks in the UK are well ahead of the curve and the latest stress tests haven't revealed anything new. The biggest concern the UK banks face is what they will have to put in the ICB's proposed ring fence and the implications of having to hold the recommended Tier 1 capital cushion of 10 percent -- that's well above the stress test scenarios.
GERAUD MISSONNIER, TRADER AT SAXO BANQUE, PARIS
All the Italian banks have passed the test. This is reassuring for the euro zone, and the overall number of banks that have failed the test seems somewhat lower than what the market had been expecting. Overall, we don't see much impact from this on the equity market, it's been priced in already.
FREDRIK NERBRAND, GLOBAL HEAD OF ASSET ALLOCATION, HSBC BANK, LONDON
On a top-line basis it was pretty much in line with expectations. Having said that, the expectations weren't set very high, given the fact that the stress scenario isn't adverse enough to make the stress test really worthwhile. It wasn't going to show that very many people had failed.
MICHAEL SYMONDS, CREDIT ANALYST, DAIWA CAPITAL MARKETS, LONDON
With only eight banks failing and the requirement for these banks to raise 2.5 billion in capital, it wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised.
That being said, I don't think people really expected that outcome. But the solution to the wider sovereign/bank malaise in Europe needs to go beyond simply pumping more capital into the continent's banks. That's the underlying message, the solution's gone beyond that.
(Reporting by Simon Jessop and Sarah White in London, and Blaise Robinson in Paris)