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Will tests stress Europe's banks?

Tuesday, April 29, 2014 - 02:02

Apr 29 - European banks must show they can survive simultaneous routs in bonds, property and stocks, in the toughest test so far by regulators aiming to restore confidence in an industry that had to be rescued by taxpayers in the financial crisis. Sonia Legg reports

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The bond trading slump has claimed another victim. Deutsche Bank's overall profit in the first quarter fell by nearly a third to 1.1 billion euros, with the pretax profit from investment banking down 22%. The drag on earnings wasn't as bad as that seen by some of its rivals. But CMC Market's Michael Hewson says Germany's biggest bank has other challenges to deal with too. (SOUNDBITE) (English) MICHAEL HEWSON, CMC MARKETS, SAYING: "The Asset quality review from the ECB, the likelihood that it could face further litigation through FX price rigging so even though there are slightly better than expected I still think there are significant headwinds ahead fro Deutsche Bank." Spain's Santander seems to be moving on from its troubled past. The euro zone's biggest bank has launched a buy-out offer for the remaining 25% of its Brazilian unit - one of its top profit drivers. The deal is worth 4.7 billion euros and suggests the bank has growing confidence in its finances. Its first quarter profits rose 8% although Pierre Briancon from Reuters Breakingviews says it does raise a few questions. (SOUNDBITE) (English) Pierre Briancon, ReutersBreakingviews, saying (English): "It makes sense for the bank but on the other hand it throws some doubt on the stated strategy of Santander which is to list its local units in different countries." Spain's banks were among those worst hit by the financial crisis. And losses on property loans continue to drag on Santander's earnings. Tougher stress tests to make the European Union's 124 banks safer have just been announced. They must show they can survive simultaneous routs in bonds, property and stocks. Fidel Helmer from Hauck and Aufhaeuser is confident they'll be more effective than the last lot. (SOUNDBITE) (German) HAUCK & AUFHAEUSER PRIVATE BANK CAPITAL MARKETS EXPERT, FIDEL HELMER, SAYING: "The assumed scenarios are extreme. When you consider one involves a fall in house prices of 20 percent then it's pretty adventurous. For now, such a scenario is unthinkable." The European Banking Authority's three year test period is also a year longer than the previous one. It's hoped that will allow banks to finally move on and crucially for the economy start lending again.