Europe Fears Banks Lack Cash Cushion to Cover Bad Loans
As Europe slogs through its latest round of bank stress tests, a growing number of analysts have already reached their own conclusion: Eurozone banks need additional cash.
The E.C.B. will publish the results of its half-year investigation into Europe’s 128 largest banks on Oct. 17. But until then, with worries mounting that the central bank will come down hard on banks with particularly weak loan books, investors and analysts have been scrambling to determine which of these lenders are most at peril.
As concerns build that weak banks will be forced to raise more cash as bad loans increase, investors — once eager to pile into these stocks, based on recovery hopes — have reversed course. Since early June, Piraeus and Popolare in Italy are down by a quarter, while Popular in Spain has lost 16%.
For more than two years, outside analysts have argued that European banks, compared with their American peers, suffer from a fundamental capital deficit.
Local central banks in countries hardest hit by the crisis — Spain, Ireland, Cyprus and Greece — have hired outside financial firms to run independent stress tests.
In Cyprus and Greece, reports have drawn criticism over their independence. The most recent of them, a comprehensive study issued in March by BlackRock, which estimated Greek banks would need only 6 billion euros in new cash, has been criticized by one of Greece’s primary creditors, the International Monetary Fund, as being too upbeat.
“The picture they have painted is too optimistic,” said Jens Bastian, an Athens-based financial analyst. “The events on the ground do not support these optimistic scenarios.”
One senior Greek banker, who spoke on the condition of anonymity, said that he was expecting the E.C.B. to require the top four banks in Greece to raise from 5 billion to 8 billion euros.
Greek officials have said that in such a situation, the banks could tap international markets, as Piraeus and others did successfully earlier this year.
But with nonperforming loans pushing ever higher, and with investors more cautious about investing in risky European banks, securing the needed cash may not be so easy this time around.
Source: nytimes
