* Investors expect banks to raise 51bln after ECB tests
* Nine banks expected to fail ECB tests
* Italian, Greek and German banks most at risk
* ECB's credibility rising amongst investors
(Adds bank comments, share price reaction, further detail)
By Laura Noonan
London, Sept 2 The European Central Bank's
landmark review of euro-zone banks will have to ask lenders to
raise an additional 51 billion euros ($67.02 billion) to be
credible with markets, a Goldman Sachs survey of large
institutional investors has found.
The survey of 125 institutional investors from across the
globe also found that nine of the 130 banks being tested were
expected to fail, with capital shortfalls most likely at
Italian, German and Greek banks, according to a document
circulated by Goldman Sachs on Tuesday night.
The ECB is examining whether banks have properly recognised
losses in a bid to finally draw a line under doubts about euro
zone lenders' balance sheets before it becomes their supervisor
on Nov. 4. Results are expected around Oct. 17.
Producing a result that is in line with market expectations
is key for the ECB, since previous rounds of EU bank tests in
2010 and 2011 were roundly discredited for capital demands and
failure rates that were far less than what investors deemed
"The ECB is clearly perceived to have handled the process
well thus far, resulting in an increase in credibility assigned
to the exercise," Goldman's report noted, pointing out that 89
percent of investors now expect the tests to be credible, up
from 70 percent in a previous Goldman survey in October.
Expectations of an "extreme" outcome that would require
banks to raise over 100 billion euros fell from 18 percent in
October to 8 percent now, but investors' average expected
capital demand is now 23 billion euros higher than in October
The 51 billion euros investors say is needed takes account
of capital that banks have already raised, including 47 billion
euros they have raised since October. The ten banks seen as most
likely to fail include six that have already raised capital.
Three quarters of investors surveyed said they expected the
exercise to be positive for bank valuations, with banks set to
"outperform" the broader equities market once the results are
announced. Euro-zone banks have traded at lower valuations than
their U.S. peers in recent years.
GREEK, CEE AND AUSTRIAN BANKS IN FOCUS
Perceptions of Greek, central and eastern European and
Austrian banks have deteriorated most since October, the survey
said, while investors' views on Spanish banks have improved.
Their shares did not suffer on Wednesday, when the benchmark
Stoxx Europe 600 banks index was up 1.32 percent by 1119
Greek and Italian banks are seen as most likely to fail,
according to the survey. Italy's Monte dei Paschi,
seen by investors having the highest risk of failure, declined
to comment as did Banca Popolare di Milano, the sixth
most likely to fail, and Banco Popolare, the fourth
most likely to fail.
Greece's Piraeus, Eurobank and Alpha
Bank were also among the top ten most likely failures
along with Germany's Commerzbank, Portugal's BCP
, Austria's Raiffeisen Zentralbank, and Spain's Banco
"There have been several reports out recently with different
views on the outcome of the exercise, in this phase there is
speculation in the market," a senior Greek banker said. "Greek
banks have high capital buffers as a starting point."
Fokion Karavias, senior general manager at Eurobank, the
country's third-largest lender by assets, told Reuters his bank
was participating in the exercise "with confidence", while Alpha
and Piraeus declined to comment.
Commerzbank said it does not comment on individual studies
and referred to a statement by finance head Stephan Engels made
when the bank published its quarterly results on Aug. 7 who said
the bank felt "well positioned to pass these tests".
Spain's Popular declined to comment but had previously said
it would pass the tests. Raiffeisen said it was "most confident"
that the bank will pass the stress test. BCP declined comment.
(1 US dollar = 0.7610 euro)
(Reporting by Laura Noonan in London; Additional reporting by
Tom Atkins in Frankfurt, Silvia Aloisi in Milan, Sarah White in
Madrid, Mike Shields in Vienna, Filipa Cunha Lima in Lisbon and
George Georgiopoulos in Athens.; Editing by Leslie Adler and