Stress reliever

- "The CEBS stress tests have, in our opinion, achieved a sufficient level of rigour to be taken seriously. Not all banks passed, and although the aggregate capital shortfall was small, this largely reflects the amount of capital that has already been put into the European sector (we estimate that this might amount to €220bn including retained earnings, RWA reductions and capital increases). Although the sovereign stress test disappointed many commentators by only stressing trading books, we find that the additional stress placed on the banking book in the “additional sovereign scenario” actually compensates for this; the aggregate amount of loss in the CEBS sovereign scenario for our coverage universe (c€40bn) is actually very similar to the loss that would be delivered in a more realistic assessment of the entire sovereign book."
- "We have re-engineered the CEBS criteria to deliver the stress test we believe investors wanted to see: We have changed the basis for measurement from headline Tier One to Equity Tier One, and incorporated a more realistic sovereign risk scenario. On this basis, the majority of the quoted European banks still pass the stress test; the exceptions being the Greek banks (which are affected by a large exposure to their own sovereign) and KBC (where the stress test model does not give credit for planned disposals). We find that the sector in aggregate would have surplus capital of €247bn of surplus capital relative to a 5% stress case Equity Tier One standard, half of this being in the UK."
- Stock Calls: "In our opinion, the important catalyst here is not so much the stress tests themselves as the transparency provided, which is impressive, in our opinion. We would highlight amongst our Outperform-rated stocks BNPP, Unicredit and Santander. Other stocks which we have on Neutral but that may also benefit form a sector bounce would probably include Societe Generale and BBVA."
CreditSuisse European Banks 20100723