European Bank Bloodbath Destroys Stress Test Credibility

Tyler Durden's picture

If the goal of the EBA Stress Tests was to reassure investors and regain confidence that 'all is well' in Europe's increasingly fragile and systemically interconnected banking system, then it has utterly failed. The broadest European bank stock index is now down 7% from the post-stress-test spike highs, Italian banks are at record lows and being halted (despite Renzi's promises), Commerzbank is struggling with capital raise chatter, and Deutsche Bank and Credit Suisse are tumbling after being booted from the Stoxx 50.

"We're gonna need a bigger stress test"...


Credit Suisse is down almost 15% since Stress Test hope...


Commerzbank is collapsing too...

Commerzbank's warning on profits and negative interest rates sent its shares to a record low on Tuesday.


While the results of the latest health check on regional banks by the European Banking Authority were greeted by investors with a sense of relief, the fact that the tests did not take into account interest rates staying negative for a long time has met with criticism.


"If rates stay this low, interest income will not be that much of a contributor to the capital base and from that angle, it’s difficult to see the banks being in a strong position," Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.


Deutsche Bank is only going to end one way... (hitting new record lows today)


For Deutsche Bank, it will be the first time since 1998 that it will no longer be a member of the STOXX 50. Shares of both were firmly in the red on Tuesday, with Credit Suisse down more than 5 percent and Deutsche off 3.5 percent. The decision by STOXX Ltd, which manages Europe's top benchmark stock indexes, came following a near halving in value of Credit Suisse and Deutsche shares this year. Deutsche shares are now more than 88 percent below their 2007 peaks.

Banks in Europe are grappling with deteriorating profits, slumping investment income on the back of collapsing yields and higher regulatory costs.

And Italian Banks have given up all their immediate Stress Test gains...


So given all of this, one wonders how long it will be before the bank runs begin?

Charts: Bloomberg

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MaxThrust's picture

Very soon I imagine

Manthong's picture

I do not often bathe in blood, but when I do, I prefer it to be at a European bank.

Soul Glow's picture

Bank runs, that's when they shit their pants, right?

hooligan2009's picture

that worked for "trots"skyites

AGAU's picture

Me too, AG, AU, Btc,  Network of like mindeds, medical skills, food production knowledge, understanding that we are multi dimensional entities experiencing a 3rd Dimesional reality. The S will HTF but it will be the fan of the elite and their clever illusion not my fan.

Lore's picture

Historically, "elites" get away scot-free.  The masses are programmed to focus on lackeys.  That said, an awful lot of lackeys seem overdue for comeuppance.

The collapse of Europe in its present form is no surprise; it's part of a program. The real economy is being collapsed under the weight of imbalances created by the international banking complex. All capital is being ruined. Everything is going to keep getting worse unless these organizations are destroyed and power is taken away from psychopaths.

Dead Canary's picture

Oh Jesus titty fuckin CHRIST people! Just give me my $500 silver so I can retire to hookers and blow!

nibiru's picture

How soon was it for Greeks to start running? For them, it took some time, plus now with capital controls the whole country is in freefall.


I expect the same shitstorm to spread to Italy first and then who knows? Maybe even big DB will be nationalised by refugee-loving Mutti Merkel


Iam_Silverman's picture

"Maybe even big DB will be nationalised by refugee-loving Mutti Merkel"

Yes, I can visualize it now, a big sign outside of each branch welcoming the middle eastern invaders and explaining how their social benefit allowances will be paid through a DB account-linked debit card.  Isn't that how we prop up some of the TBTF banks here stateside?

Haus-Targaryen's picture

I disagree.  They'll nationalize DB before they let it fail.  Draghi will print up a ton'o Rainbow Bucks to support it, CS, Commerzbank, Monti Paschi or all of them at one time.  

Anything to save their precious "expirment." 

nibiru's picture

It all started (apart from million other reasons) with NIRP - a return favour for the money given to Europe during 2008 crisis by Bernanke.

So if Draghi started experimenting with NIRP to enable money flow to the US (looking better with still positive, near ZIRP) than the FED can now continue the experiment by going negative to save Europe for another year or two - while they nationalise and bail out everything that has a deposit of some sort.

LawsofPhysics's picture

Look at the paper the ECB has alread printed to cover DB losses!!  How the fuck can anyone say that ALL banks in the west are NOT nationalized already!!!!!  THEY FUCKING ARE!!!!

Haus-Targaryen's picture

Because they aren't.  They're publicly owned entities.  

When the stock price of DB drops to 0,01€ per share, and the Bund steps in and buys everyone out for 0,05€ per share and privatizes it via nationalization -- then I'll agree with you.  

Then again, I think once DB hits 9,99€ per share people will start panicking. 

NoDebt's picture

You're an American living in Europe... how come you keep using commas where decimal points belong?  I'm starting to worry that you've become seriously infected.

Haus-Targaryen's picture

My keyboard at work as a , where the . should be, and I am far too lazy to not use the keypad.  

Although I do sort my trash now.  O_o

Librarian's picture

I had to change my signature in China.  I was told that it looked exactly like the unlucky number 4.

There are lots of other things I find myself unconsciously doing differently when outside the US.

I usually draw a small uptick when writing the number "1" and a slash across the number "7" when I'm in Europe.

RockySpears's picture

Forgive me.  


Publicly owned IS Nationalised is it not?



NoDebt's picture

I was wondering that, too.  I think he's getting his pubics confused with his privates (yes, I meant to spell it that way).  Happens to everyone sometime.

It's like that day when you accidentally wear your underwear on the outside of your pants.  Who hasn't done that?

Haus-Targaryen's picture


If you work for the SEC then yes, publicly owned means "owned by a government." 

For the rest of the world publicly owned company is a company in which its shares are traded on a major national stock exchange.  A privately owned company is a company that is not owned by a government, but its shares are also not freely available on a national stock exchange. 

When a publicly (listed) company no longer has freely available shares to buy and sell, it has become "privatized." 

When a national government buys all the shares of a company's freely available stock and thus removes it from a stock exchange, it becomes nationalized (owned by the government) via the process of privatization. 

Hope that helps. 

NoDebt's picture

You've been in Europe too long.  Come home.

Haus-Targaryen's picture

haha -- can't. 

Wife is a German doctor, and she cannot practice in the US without losing about 10 years. Besides, I make more here than I would in the US. 

Anglo Hondo's picture

Hey, H-T

You sure don't want to wear your Depends on the outside.  You would start to look like Douche Bank. Smell like it too.

Watson's picture

When a national government buys all the shares of a company's freely available stock and thus removes it from a stock exchange, it becomes nationalized (owned by the government) via the process of privatization.

Nationalisation can happen by other routes, such as the gov leaving the existing market float alone, but buying a controlling interest via newly created shares (hopefully at the same price as the free float).

RBS in the UK went down that route, with a further complication:
Direct application of the route would have resulted in (if such things still existed) paper share certificates with the owner name 'HM Government' (actually, possibly 'HM Treasury').
By any definition, that would be labelled 'nationalisation', which for political and historical reasons was unacceptable.
So what happened was the UK government created an intermediate vehicle called 'UK Financial Investments Limited' (UKFIL). UKFIL got money from the government, spent it on newly created RBS shares, and thus the owner of those shares was UKFIL, not the government.

The government found out the problem with this idea when it wanted to use its (indirect) control over RBS to switch off its investment bank.

It couldn't (because the control was indirect).

Didn't matter that the IB may or may not be making money: gov money was to protect the retail and small commercial businesses that used RBS (somehow it had a dominatant role in money transmission), and (fair enough I thought) gov didn't want to be seen providing the stake for the 'casino bankers' to be able to re-enter the casino.

In that objective, the gov failed...RBS _still_ has an IB arm.


Haus-Targaryen's picture

Yes you are correct.  

The only issue with equity dilution is minority shareholder rights/consent, etc., etc., which can play a pivotal role if the new majority shareholder (government) wants the business' purpose to change, from say a bank to a "bad-bank" which is more closely related to a liquidator and not a lending institution.  

But I digress, you are correct.  

hooligan2009's picture

Is what happens when you let Scots buy English banks that are 8 times the size.

Barclays and Lloyds are the only two of four of the original clearers (Midland went to HSBC, NatWest to RBS) - clearers are systemic to the economy, not ust the banking sector.

how now ApplePay and GooglePay or PayPal or Wester Union that charge 3-5% per clearing cash transacton? Clearers came into being becuase they didn't charge these usurous t/costs, now the politically correct regulatory and tax arbitrageurs are price gouging "willy-nilly".

LawsofPhysics's picture

BULLSHIT!!!!!!  you sound like another fucking academic making things complicated to simply hide the fucking fraud/theft.

No matter, such "let the majority eat cake" monetary experiments have indeed been tried before, this one will end the same way.

Haus-Targaryen's picture

Sorry you don't like how Corporate Law works.  

GadExp's picture

Tell that to Japan where their central bank has purchased over 50% of the "publicly traded" securities.


There isn't a stock market on the planet that hasn't been overrun by central bank participation in order to "benefit" the people.


My only question is, "How do they choose which stocks to buy and which to leave alone?"

zvzzt's picture

Then again, I think once DB hits 9,99€ per share people will start panicking. 


So tomorrow then?

Sorry, had to post that reply - agree fully with earlier mentions. 

spanish inquisition's picture

Looking at the graph overlay , you can see when Lehman was "sacrificed". I don't see those plans for DB either.

Haus-Targaryen's picture

I think the world's best case for a large financial institution to be "sacrificed" is for a political change in power in some country, where a "financially sophisticated" government is replaced by a "non-financially sophisticated one" and then something goes *boom.* 

NEOSERF's picture

Agree, politically to assuage the Germans, Draghi will "save" DB first and then take $300B of bad debt off Italian bank hands...

hooligan2009's picture

that is illegal and DB is not a German bank - BMPS is a "canary in a coal mine" being used by the banking sector to see if it dies or whether it can engage in the illegal bail-out to stay alive.

Watson's picture

I agree DB gets bought out by the Bundesbank...but if happening in an environment where German taxpayers are _also_ expected to pick up the bill for BMPS (and UC, which IMO is a much worse problem), than I wonder if politics in Germany takes a radical turn, involving a return to the DEM and the abandonment of the ECB.


Haus-Targaryen's picture

Germany going back to the DM or (I think a NEURO/Thaler would be even better) some other currency would be a great idea.  

I think though BuBa wouldn't be bailing out DB -- is doesn't have i) enough cash nor ii) the ability to print cash. 

I think Wilhelmstraße 97 would nationalize it.  While the Germans *might* swallow the FinMin eating DB or Commerzbank -- having them bailout PIIGS' banks in a time where unemployment is skyrocketing here would be a politically toxic scenario. 

hooligan2009's picture

smell test - DB is not a German bank - it employs non-Germas to run it and tries to make most of its profits outside Germany - it does not pay German tax.

same as AAPL is not an American company, it's hardware is not American, it pays no taxes here and employs the bulk of its labor force overseas (ex-the USA)

why shouldn't DB fail? same reason AAPL should be prosecuted as a foreign company dodging US taxes - regulators are too stupid to ask "Cui Bono" and make sure that it is the domestic economy not some european principality, or south/irish sea tax haven.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 2, 2016 7:50 AM

Ban short selling.  Experts have already determined that all these banks are completely safe even in horrible worst case scenarios.  Evil speculators are likely naked shorting the stock to bring down these rock solid titans of finance /s

LawsofPhysics's picture

Yeah!  and then give everyone access to FREE MONEY because we really need to stimulate inflation!



Government needs you to pay taxes's picture

Hyperinflationary burst in spinning chrome rims in 3 . . . 2 . . . 1

American Psycho's picture

As I am long the $10Jan2017 puts I hope they keep shorting DB.  Sink you fucker.

Poundsand's picture

Mental picture of the guy in the cave at the beginning of the original "Indiana Jones" movie rubbing his fingers together in anticipation of a big score.

You can almost just touch it....

PTR's picture

The manipulation aside, I'm always amused at the politicos who say "ban short selling" when there is a simple counter-argument to that: closing out the trade produces buying demand.  It's like saying that the only way to get into the other lane of traffic is to go FORWARD faster than the car next to you instead of just slowing down and merging behind them.

Motasaurus's picture

OMG. If you slow down to merge you deserve to be shunted off the road, set fire to and then have your ashes mixed with salt so that there is zero possibility that your stupid can ever be passed along to another living being.

LawsofPhysics's picture

LOL!!!  All is well!

Your move Mario!

Go full NIRP and send even more capital to America you stupid fuck!

Pieter Bruegel the Elder's picture

He who has no credibility, cannot lose it.

Government needs you to pay taxes's picture

Today it's European banks, tomorrow it'll be currencies and .gov sovereigns.