European banking regulators have released the results of their so-called stress tests. Many EU lenders had been confident of being given a clean bill of health, and a fresh injection of investor confidence.
European markets will rise or fall on the test results
European banks were awaiting a potential panacea as regulators prepared to release the results of their banking stress test on Friday. Most of the 91 financial institutions, including 14 German banks, were confident of receiving a clean bill of health.
The tests were ordered to assess whether Europe's banks could survive future economic crises, and are aimed at boosting investor confidence in the rattled eurozone.
The banks being examined by the London-based Committee of European Banking Supervisors represent 65 percent of the European Union banking sector.
European governments have remained upbeat about the results, though the tests were expected to show that some lenders would require cash injections under certain scenarios.
The German banks under the microscope include Deutsche Bank, Postbank, Commerzbank, Hypo Real Estate (HRE) and all of the country's seven Landesbanken, or state banks.
Many analysts rightly believed HRE was unlikely to pass the stress test after it became a prominent German victim of the global financial crisis and came close to collapse in 2008. The bank stayed afloat thanks to government loan guarantees and cash injections.
Market expert Michael Best said many banks, particularly in Germany, were reluctant to agree to publication of the stress test results, arguing that business secrets could be divulged and hasty conclusions drawn on the status of financial markets.
German confidence, Spanish jitters
Hypo Real Estate require a bailout from the German government
Despite this, Manfred Weber, the head of the Association of German Banks, told public broadcaster Deutschlandfunk he was confident German banks "all in all" would perform well in the tests.
The governments in Great Britain and Ireland, meanwhile, are reported to have few fears over the tests.
The British Chancellor of the Exchequer, or finance minister, George Osborne, has already stated that none of the banks in the United Kingdom would need state help, while in Dublin there are few concerns the stress test will shed any more light on the troubles of one of the country's big four banks, AIB, which received financial aid in 2009.
In Spain, however, fears were growing ahead of the test results, with daily El Pais reporting, correctly as it turned out, that several of the country's 18 banks being tested had failed.
Markets respond positively
Markets surged higher on Thursday, with leading banks anticipating passing the crucial tests on their financial well-being.
"The rally we've seen in the banking sector yesterday signal that the stress test results have been well anticipated, thanks to all the comments already made by officials," IG Markets analyst Philippe de Vandiere told news agency Reuters.
"But I think that even if the tests are good, investors will take it as an opportunity to book profits after the strong run-up to the tests."
Author: Darren Mara (Reuters/AFP)
Editor: Rob Turner/Susan Houlton