Danske Research Team
Danske Bank A/S
The result of the ECB’s Asset Quality Review (AQR) and stress test, including the fact that 12 out of the 25 have already covered their capital shortfall, is better than feared. Importantly, there were no major banks failing the tests. It should overall reduce tail risk from the banking sector.
The ECB only sees EUR9.4bn in capital shortfall on an aggregate level, which should be considered positive. Italy and Greece have the largest shortfalls but the latter is already managed by the European Commission’s restructuring plans.
For Italy, nine out of 15 supervised banks have a capital shortfall as of end-13 and adjusting for net capital changes throughout 2014 this still leaves four banks with a total capital shortfall of EUR3.3bn.
The limited capital shortfall in the euro area reflects that banks have already raised capital in anticipation of the comprehensive assessment and going forward shortage of bank capital should be a smaller headwind for credit creation and economic activity.
The stress test should be deemed credible as the adverse scenario implies a reduction in the median CET1 of 4pp. Compared to previous tests this is tough.
We expect the release of the AQR and stress test to bring some relief to the markets as the exercise has been a concern throughout this year and the results are better than feared, while the stress test should still be considered tough.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.