Borrowing costs rose Monday in a sign that Friday’s stress tests failed to ease financial fears.
Three-month euro Libor, the price banks pay to borrow from one another without posting collateral, rose for the 41st straight day, to 0.82%.
Meanwhile bank stocks were mixed. Britain’s Barclays was up 2%, after posting some of the strongest test results and disclosing limited exposure to troubled European governments in Portugal, Italy, Ireland, Greece and Spain.
But Germany’s Deutsche Bank, which is among a few banks that hasn’t disclosed its sovereign exposures, dropped 1%, and Spain’s Santander slid 2%.
The selloff in Santander came even as analysts said the European stress tests appeared to have applied their toughest assumptions regarding the depth of a possible downturn to banks in Spain and Ireland.
But regulators’ failure to call for more capital raising in the euro zone looks like “a missed opportunity,” analysts at Morgan Stanley wrote in a note to clients.
Officially, the seven banks that failed the test will have to raise 3.5 billion euros ($4.5 billion) to reach European supervisors’ target level of 6% capital.
But Morgan Stanley (MS) said it believes investors were expecting to see at least 20 billion to 30 billion euros ($26 billion-$39 billion) in new capital – even excluding the full impact of a possible shock to the health of a troubled government debt issuer. Shoring up capital against that would cost tens of billions more, Morgan Stanley said.
Though it calls the details disclosed in the exercise “welcome,” Morgan Stanley reasons that officials’ failure to demand more fundraising could leave weaker banks teetering at a time when recovering economies will need robust credit extension.
“It will be a disappointment that many euro zone banks have not adopted a ‘fortress balance sheet,’” the analysts write.