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So how stressed are Europe's banks?

Monday, October 27, 2014 - 02:31

25 euro zone banks failed landmark health checks and 14 still had a capital shortfall at the end of September. The results were generally better than analysts had expected but as Sonia Legg reports big challenges remain.

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14 banks must do better - that's the bottom line following banking stress tests in Europe. In all 25 of the euro zone's 130 key banks failed the health checks. But some have recently improved their capital shortfalls to put them above the pass mark. The 14 that haven't made the grade have two weeks to say how they plan to do so. They include two Greek banks, two Belgian banks and four Italian lenders. Mike Ingram is from BGC. SOUNDBITE: Mike Ingram, Strategist, BGC, saying (English): "A lot of the pain was felt in Italy, in Cyprus and Greece. All of which of course have had a torrid time economically recently. I suppose from a systemic perspective Italy has to be the biggest worry because it's the third largest economy in the euro zone." Italy was on the defensive pointing out that their banks - unlike others - have never needed state handouts. Giovanni Sabatini, head of the Association of Italian Banks, also believes the test was unrealistic. SOUNDBITE) (English) DIRECTOR GENERAL OF ABI, ASSOCIATION OF ITALIAN BANKS, GIOVANNI SABATINI, SAYING: ''If you add the stress test hypothesis to the current situation of Italy you have a drop of 12% in GDP, five years of consecutive recession, something that never occurred during the history of Italy." It wasn't very positive for Monte dei Paschi - shares in the world's oldest bank fell 20% Most banks are far stronger but stability says Baader Bank's Robert Halver doesn't mean an end to the euro zone's growth problems. (SOUNDBITE) (German) HEAD OF CAPITAL MARKET ANALYSIS AT BAADER BANK, ROBERT HALVER, SAYING: "It's not just important for banks to be in good shape as far as liquidity goes. They need to issue loans and compared to England or the United States they are badly positioned. They issue very few loans which is the reason why the euro zone is in very bad shape economically." Many also believe banks need to have more confidence in each other - before they will start lending to the real economy. SOUNDBITE: Mike Ingram, Strategist, BGC, saying (English): "We need to see cost of capital for the banks coming down further and we need to the cost of capital being passed on to borrowers and that's the only way we're actually going to see economic recovery." But the health check was largely reassuring. The region's lenders were judged to be just 25 billion euros short of capital at the end of last year, based on the value of their assets and their ability to withstand another crisis. And the amount of new money needed after developments this year is less than 7 billion euros - far less than the 50 billion predicted by Goldman Sachs in August.

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So how stressed are Europe's banks?

Monday, October 27, 2014 - 02:31