THE EU’s second round of stress tests precipitated a sharp fall in European bank shares yesterday after being slammed as “frustrating” and full of “widespread anomalies”.
Analysts were scathing about the European Banking Authority’s (EBA) first ever tests, keeping price recommendations unchanged and saying that the exercise was effectively useless as a tool for distinguishing between risky and sound banks.
Credit Suisse analysts called the tests a “missed opportunity”, adding “the market remains correct to be worried about funding and liquidity”.
In its analysis, Barclays Capital said: “The variation by bank is enormous… This kind of variation hurts the credibility of this exercise, in our view.”
There was also a concern that the tests unduly penalised investment banking operations versus retail and assumed that a future stress scenario would mimic 2008.
Investec wrote that in the tests’ earning assumptions “RBS was particularly disadvantaged”.
UBS adds: “The tests proved favourable for retail banks” and failed to adequately take into account the different nature of the current crisis.
Credit Suisse agreed: “Securitisation holdings are dealt with in a very penal fashion… [which] does not take account of the fact that the major stress period (2007-2009) is in the past, and is based on the US experience.”