European bank executives huddle at ECB as test results loom

21st July 2010, Comments 0 comments

European bank executives met European Central Bank officials Wednesday two days before results of crucial "stress tests" on the health of the banking industry were to be released.

UniCredit chief executive Alessandro Profumo, Corrado Passera of Intesa Sanpaolo and Commerzbank's Martin Blessing were among those who came to the ECB's Frankfurt headquarters without speaking to reporters.

Andreas Treichl of Austria's Erste Bank said only: "I am very sure" when asked if his group had passed tests aimed at determining if it could withstand a severe economic slump or heavy losses on government loans.

Among the ECB officials present were president Jean-Claude Trichet and the Italian and Spanish central bank governors Mario Draghi and Miguel Fernandez Ordonez.

No press briefing was expected after the meeting, which came as analysts and financial markets waited for the results on Friday of tests on 91 European banks that could reveal some do not hold sufficient capital reserves.

Those banks and their countries are then expected to reinforce the bank's cash reserves and to bolster confidence in Europe's banking sector.

Meanwhile, comments from bankers and politicians were hard to come by.

"I do not wish to speculate on the subject," German Finance Minister Wolfgang Schaeuble said Wednesday in Paris, where he attended a French cabinet meeting.

Schaeuble nonetheless voiced strong support for a decision to publish the bank test results "because the worst thing for markets is uncertainty."

German Chancellor Angela Merkel stressed that long and technical talks had resulted in tests which "represent reality."

But despite reassuring remarks from political and financial figures, many analysts are not convinced the results will be credible, which could heighten market tension and make it harder for some banks to borrow the funds they need.

At least two scenarios were considered, the most favourable one based on current macro-economic projections by the European Commission.

A more severe case assumed growth of three percentage points below those forecasts and the possibility that banks might have to book losses on some of the government debt they held.

Outright default by a eurozone government such as Greece was not considered however, a key reason why some analysts withheld approval.

Those at the Australian bank Macquarie said for example "that stress assumptions will be too weak to provide real clarity" regarding the bank's financial health.

Criteria that were too lenient "could impair credibility, particularly if a handful of banks that face severe domestic headwinds and no access to wholesale funding markets are given the all clear'," they added.

Macquarie listed Germany's Postbank, Banco Popolare of Italy, BCP of Portugal and the Spanish Sabadell among those likely to need recapitalisation once the results had been released.

Stress tests carried out in the United States early last year are widely said to have restored confidence, and most US banks that "failed" were able to get subsequent financing and rejoin the group of healthy institutions.

The ratings agency Fitch voiced concern "that conditions in European funding markets remain difficult for some banks."

State-owned German regional banks and Spanish savings banks are among those tipped to require additional funds.

Hypo Real Estate, a German lender that was nationalised last year, is among those cited most often as being at risk, but it has already acknowledged that it needs another two billion euros (2.6 billion dollars) in capital.

"The stress tests need to do more than confirm that an already failed German bank is a failed German bank," the Financial Times noted on Wednesday.

© 2010 AFP

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