European Bank Bloodbath Destroys Stress Test Credibility

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