On one hand, there is speculation that the Stress tests [May|May Not] be relevant, [May|May Not] push equities to fresh [highs|lows] and will prove just how [strong|broke] Europe is - that's fine: it is all part of the expectation and the show that the Stress Test theater was from the beginning. On the other, 3 Month EUR Libor is as the highest it has been since August 23, 2009, as the market continues to lock up, and while it is still materially tighter than all time highs, when Libor was surging in the 4-5% range two years ago, banks did not have the explicit backing of every currency printer in the known Keynesian world. The fact that this indicator has been on a straight up path since April is the only thing European regulators need to explain.
But for those who just can't get enough of the [lack of] backstabbing in this year's season of the Stress-ful soap opera, here is Goldman's grade sheet.
- 10 of the 91 institutions will not pass the stress test (for a pass rate of 89%), as per the average response.
- Consequent capital raisings expected: Below €10 bn (9% of participants), €10-25 bn (33%), €25-50 bn (35%), €50-100 bn (18%), above €100 bn (5%). This implies a mean (at the middle of each range and assuming >€100 bn = €100 bn) of €37.6 bn.
- 63% believe that the amount of capital raised will leave banks adequately (or overly) capitalized, while 37% see a capital deficit even post the stress test.
- Banks domiciled in Spain, Germany and Greece are expected to raise the most fresh capital.
- The source of capital is expected to be split between the public (51%) and private (49%) sector.
- Opinions remain split on the performance of the sector in the 3 months following the stress test, with 38% expecting outperformance, 26% underperformance and 36% in-line performance
Overall, we grade the excitement level surrounding the season finale of the second season of the Stress Test soap opera at C+: enough to make people forget for a few hours that the world is bankrupt, but not enough for them to throw their life savings into the market with giddy fervor and reckless abandon.