Tomorrow’s European stress test results are ready to shape markets for the week’s final trading day. 91 banks were tested by their national banking authorities.
Results are set to be released tomorrow at 12:30 PM EDT.
Here are the things we’ll be looking for:
- Who failed: We know that Hypo Real Estate probably failed. It is possible a couple of Greek banks also failed, the German bank PostBank, perhaps even a smaller Spanish lender. Right now there are far more rumours about who passed, than who failed, with some rumours suggesting everyone passed.
- Who barely passed: This is the most interesting portion of the test. Failures will likely not shock, but these banks, which may need to pursue more capital as a result, might.
- Who passed: These banks are going to see their stocks move dramatically. Early rumours point to Spain and France potentially coming through completely clean. That could see Santander, BBVA, BNP Paribas, and Societe Generale benefit. Bank of Ireland and Allied Irish also seem to have passed.
- Do we trust these tests: That will be the lasting impact of Friday’s announcement. The EU-ECB has managed an awful program of stress tests, run independently in each country, in a manner which has looked anything but organised. The tests themselves look weak, though that was said about U.S. tests too. If markets react by backing shares in the banks that pass the tests, not just Friday, but through the next few weeks, we’ll know the the EU-ECB has won this round.
- Bonus: Will we get surprise sovereign debt data: This now seems likely. Banks may be required to release information about the sovereign debt holdings with the exam results. This would go a long way to reassuring markets that the tests are real.
Conclusion: If everyone passes the tests, the market will likely see them as weak and not trust them. There will need to be a few sacrificial lambs.