Instant view: Seven banks fail European stress tests

LONDON (Reuters) - Seven of 91 European banks have failed stress tests and show an overall capital shortfall of 3.5 billion euros, the organizers of the tests said on Friday.

Following are comments from policymakers and analysts on the results.

BANK OF GREECE

"The significant capital increases that took place in 2009 underlie the Greek banks' performance. This enhancement was mainly the result of the increase in supervisory own funds. The main factors that contributed to the increase in supervisory own capital were: the capital raised by several banks from the market, internal financing through retained earnings as no dividends were distributed in 2009, as well as the issuance of preference shares."

FRENCH ECONOMY MINISTER CHRISTINE LAGARDE

"In my view the test was tough, it was inclusive, it was very comprehensive. It included macroeconomic components as well as debt crisis components and as a result I would suggest that these results are very credible and should certainly raise the confidence in European banks."

"The French banks have passed the test, and they have passed it well. They are well ahead of requirements, and I have no doubt that they don't need additional capital at this time at all."

RICHARD CRANFIELD, CHAIRMAN GLOBAL CORPORATE GROUP, ALLEN & OVERY

"Arguably the failure here is not the banks concerned, but the test itself. There is little evidence that the tests have been applied consistently and there is a distinct lack of credibility, making this a wasted opportunity. One assumes those banks that have failed will be rescued or recapitalized; however the banks that have scraped through may have more of a challenge on their hands and they may be the ones the market focuses on."

JUAN PABLO LOPEZ, BANCO ESPIRITO SANTO

"At first glance the Spanish banking system looks healthy, with all the major banks passing.

"The total capital shortfall (for the savings banks) is much less than even the best estimate, so at first glance this is positive, but now we'll have to look at the results in more detail."

DAVID MORRISON, MARKET STRATEGIST, GFT GLOBAL

"There will be more volatility and weakness on the back of this. It doesn't feel like they've drawn a line under it -- we haven't got the transparency we were looking for. There is a stark difference between the way that the U.S. did this and how it's happened in Europe."

PETER DIXON, ECONOMIST, COMMERZBANK, LONDON

"A big hurdle has been cleared. You would like to think that this will give a little bit of support and certainly should mean that some of the lingering concerns about the problems faced by European banks have been eliminated. We will probably take a more positive stance from here."

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC

"The first reaction is likely to be a stronger dollar, in that currency markets could shy away from the euro on the basis the tests haven't been sufficiently rigorous and perhaps not all weaknesses in the system have been revealed."

KENNETH BROUX, MARKET ECONOMIST, LLOYDS TSB

"The capital shortfall was only 3.5 billion euros, so funding that deficit should be comfortable.

"Overall, the outcome seems satisfactory, and the markets seem to be taking it that way. The 10-year bond (yield) spreads of the peripherals versus core German one are near the day's lows, so there is no adverse reaction so far."

NIAL O'CONNOR, CREDIT SUISSE, BANKING ANALYST

"The results probably tell you more about the quality of the test. Most people are going to be saying that the sovereign test is not strict enough. But on the other hand, we have all the sovereign exposure data, and we can go ahead and do our own tests.

JOE DICKERSON, BANK ANALYST AT BROKERAGE EXECUTION NOBLE, LONDON

"Initially it looks like the banks are being tested for a blue sky scenario, not a stressed scenario. It doesn't look particularly stressful."

ANDREW MELITZ, TRADER AT ICF KURSMAKLER, FRANKFURT:

"For the most part I would say its more or less what was expected. Everyone in Germany knows that Hypo Real Estate has been a problem child its basically government owned so there is no surprise there."

KIM CAUGHEY, SENIOR EQUITY RESEARCH ANALYST, FORT PITT CAPITAL GROUP, PITTSBURG

"It doesn't seem to have thrown any big surprises. I think the market originally was happy to see this, but now that the big news is out, it is drifting back to the steady state. I don't think this will have any impact on financials here because most of the U.S. banks have passed the stress test here, and there isn't any bank that has the undue amount of exposure to Europe to be influenced by this."

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI UFJ, NEW YORK

"Monetary authorities need to reassure skeptical global investors that European banks are money good. Despite questions about transparency and how the Euro stress tests don't measure up to the U.S. tests last year, I think these tests will start to put these Eurozone concerns behind us. There might be some initial disappointment leading to some selling on Monday when European markets reopen, but the market will soon get over it.

SUSANNE HAHL, TRADER AT BAADER BANK, FRANKFURT:

"There virtually was no trade after the results have been published. And there were no great surprises either as the big banks have all passed."

PETER CHATWELL, RATES STRATEGIST, CREDIT AGRICOLE, LONDON

"The names we have seen coming with failures are the smaller ones but no surprises. The important thing is the big names have so far been solid.

"I haven't seen anything which is a concern in the banks that have passed ... Already government bond spreads are all tightening and that's the sentiment that's still going to be in place (next Monday)."