European Markets and Banks Up

Arthi Gupta
26 Jul, 2010
New York City

The European markets gain after banking stocks rebounded on results of the stress tests. The CEBS accuses German banks of not furnishing full debt details. The economic index of the euro-zone rises in June. The Economy Minister of Germany estimated economy to expand at 2% in 2010.

[R]4:00 PM Frankfurt – The European markets gain after banking stocks rebounded on results of the stress tests. The CEBS accuses German banks of not furnishing full debt details. The economic index of the euro-zone rises in June. The Economy Minister of Germany estimated economy to expand at 2% in 2010.[/R]

U.S. and Asian markets trade sideways. Hungarian retail sales drop in May and Greece trade deficit narrows in the month.

In Paris CAC 40 Index increased 10.08 or 0.30% to close at 3,617.49 and in Frankfurt DAX Index edged higher 8.05 or 0.14% to close at 6171.64.

The result of the European bank stress tests conducted by central banks and coordinated by the Committee of European Banking Supervisors was released on July 23.

The exercise included a sample of 91 European banks, representing 65% of the European market in terms of total assets, in coordination with 20 national supervisory authorities.

The stress test focused mainly on credit and market risks, including the exposures to European sovereign debt.

Seven out of the 91 banks tested in the European Union’s stress tests failed, the Committee of European Banking Supervisors said on Friday.

Nationalized bank Hypo Real Estate was the only German lender to fail the stress test. In Spain, unlisted regional banks Banca Civica, Espiga, Cajasur, Diada, and Unnim Savings Bank failed. All of Spain''s major banks passed, including Banco Santander and BBVA. Greece''s state-owned ATEbank announced that it failed with a Tier 1 ratio of 4.36% in the case of sovereign shock.

As a result of the exercise, under the adverse scenario 7 banks would see their Tier 1 capital ratios fall below 6%, with an overall shortfall of €3.5 billion of Tier 1 own funds.

Banks that failed the tests will be required to raise additional capital.

The aggregate results suggest a rather strong resilience for the EU banking system as a whole and may appear reassuring for the banks in the exercise, however several banks met the test requirements on continued assistance from several governments.

The stress tests among 91 banks across Europe were carried out professionally, according to the Eurogroup Chairman Jean-Claude Juncker.

Juncker told reporters during his visit to Slovenia that the tests proved that the banking system in Europe is “strong.” In an interview with Slovenian daily Delo, Juncker said Slovenia must reduce its budget deficit and public debt.

Germany and its banks did not publish full details of their sovereign debt holdings as part of stress tests, according to a European banking regulator.

""We agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks,"" said Arnoud Vossen, Secretary-General of the Committee of European Banking Supervisors in an interview with the Financial Times published on Monday.

Banks participating in the stress tests were supposed to reveal their sovereign debt holdings. But, six of the 14 German banks tested namely theDeutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin did not publish the detailed breakdown of sovereign debt holdings.

The leading economic index for euro area rose increased in June after dropping for the first time in fourteen months in May, according to a report published by the Conference Board today.

The index rose 0.5% to 111.2 points in June compared to a revised 0.3% fall in May.

The coincident economic index for the euro area, which measures the current economic activity, remained unchanged at 102.4 points in June. In May, the index rose 0.2% in May after falling 0.1% in April.

The German economy is likely to grow at a faster pace this year than the government had previously expected, the Economy Minister Rainer Bruederle said.

Bruederle said in an interview published in the German weekly Focus on Saturday that gross domestic product would grow as much as 2% in 2010 compared with the government''s earlier projection of 1.4% growth.

""I believe that we can achieve even two before the decimal point,"" the minister said.

Retail sales in Hungary continued to decline for the third consecutive month in May, according to official data released today.

Retail sales volume dropped a seasonally adjusted 0.5% in May compared to 0.8% in April, according to the Hungarian Statistics Office. Retail trade in food, beverages and tobacco remained flat on a monthly basis after recording a 0.9% drop in the previous month.

Year-on-year, sales declined 4.7% in May compared to a 5% drop in April.

Greece''s trade deficit narrowed 28.2% annually to €1.58 billion in May, according to data published by the Hellenic Statistics Authority today. In May, merchandise exports, including oil products, declined 3.5% year-on-year compared to 15.9% fall last year. At the same time, exports, eliminating shipments of oil products, dropped 8.6%.

Gainers & Losers

Banks and insurance companies closed higher in the regional trading after the release of stress tests results.

Commerzbank closed up 2.7% to €6.67, Deutsche Bank increased 0.9% to €50.28 and Allianz SE increased 1.1% to €87.79.

Thyssen Krupp AG increased 1.9% to €23.56.

ProSiebenSat.1 Media AG, the broadcaster surged 12.9% to €14.02 after it reported second quarter revenues rose 9.6% to €760.6 million from €693.9 million a year ago. Net profit for the quarter rose 64% to €74.5 million compared to net profit of €45.5 million a year ago.

Sanofi-Aventis SA increased 0.24% to 45.62 after the U.S. regulators approved the generic version competing with its blood thinner product.

Terna - Rete Elettrica Nazionale SpA, the utility company based in Italy increased 0.3% to €3.15 after it reported first half revenues rose 14% to €760.8 million from €667.9 million a year ago. Net profit for first half the rose 12.6% to €233.6 million compared to net profit of €207.5 million a year ago.