Instant view - Seven banks fail European stress tests

LONDON (Reuters) - Seven of 91 European banks have failed stress tests and show an overall capital shortfall of 3.5 billion euros (2.9 billion pounds), the organisers of the tests said on Friday.

Following are comments from policymakers and analysts on the results.

BANK OF GREECE

"The significant capital increases that took place in 2009 underlie the Greek banks' performance. This enhancement was mainly the result of the increase in supervisory own funds. The main factors that contributed to the increase in supervisory own capital were: the capital raised by several banks from the market, internal financing through retained earnings as no dividends were distributed in 2009, as well as the issuance of preference shares."

FRENCH ECONOMY MINISTER CHRISTINE LAGARDE

"In my view the test was tough, it was inclusive, it was very comprehensive. It included macroeconomic components as well as debt crisis components and as a result I would suggest that these results are very credible and should certainly raise the confidence in European banks."

"The French banks have passed the test, and they have passed it well. They are well ahead of requirements, and I have no doubt that they don't need additional capital at this time at all."

RICHARD CRANFIELD, CHAIRMAN GLOBAL CORPORATE GROUP, ALLEN & OVERY

"Arguably the failure here is not the banks concerned, but the test itself. There is little evidence that the tests have been applied consistently and there is a distinct lack of credibility, making this a wasted opportunity. One assumes those banks that have failed will be rescued or recapitalised; however the banks that have scraped through may have more of a challenge on their hands and they may be the ones the market focuses on."

JUAN PABLO LOPEZ, BANCO ESPIRITO SANTO

"At first glance the Spanish banking system looks healthy, with all the major banks passing.

"The total capital shortfall (for the savings banks) is much less than even the best estimate, so at first glance this is positive, but now we'll have to look at the results in more detail."

DAVID MORRISON, MARKET STRATEGIST, GFT GLOBAL

"There will be more volatility and weakness on the back of this. It doesn't feel like they've drawn a line under it -- we haven't got the transparency we were looking for. There is a stark difference between the way that the U.S. did this and how it's happened in Europe."

PETER DIXON, ECONOMIST, COMMERZBANK, LONDON

"A big hurdle has been cleared. You would like to think that this will give a little bit of support and certainly should mean that some of the lingering concerns about the problems faced by European banks have been eliminated. We will probably take a more positive stance from here."

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC

"The first reaction is likely to be a stronger dollar, in that currency markets could shy away from the euro on the basis the tests haven't been sufficiently rigorous and perhaps not all weaknesses in the system have been revealed."

NIAL O'CONNOR, CREDIT SUISSE, BANKING ANALYST

"The results probably tell you more about the quality of the test. Most people are going to be saying that the sovereign test is not strict enough. But on the other hand, we have all the sovereign exposure data, and we can go ahead and do our own tests.

JOE DICKERSON, BANK ANALYST AT BROKERAGE EXECUTION NOBLE, LONDON

"Initially it looks like the banks are being tested for a blue sky scenario, not a stressed scenario. It doesn't look particularly stressful."

ANDREW MELITZ, TRADER AT ICF KURSMAKLER, FRANKFURT:

"For the most part I would say its more or less what was expected. Everyone in Germany knows that Hypo Real Estate has been a problem child its basically government owned so there is no surprise there."

KIM CAUGHEY, SENIOR EQUITY RESEARCH ANALYST, FORT PITT CAPITAL GROUP, PITTSBURG

"It doesn't seem to have thrown any big surprises. I think the market originally was happy to see this, but now that the big news is out, it is drifting back to the steady state. I don't think this will have any impact on financials here because most of the U.S. banks have passed the stress test here, and there isn't any bank that has the undue amount of exposure to Europe to be influenced by this."

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI UFJ, NEW YORK

"Monetary authorities need to reassure sceptical global investors that European banks are money good. Despite questions about transparency and how the Euro stress tests don't measure up to the U.S. tests last year, I think these tests will start to put these Eurozone concerns behind us. There might be some initial disappointment leading to some selling on Monday when European markets reopen, but the market will soon get over it.

SUSANNE HAHL, TRADER AT BAADER BANK, FRANKFURT:

"There virtually was no trade after the results have been published. And there were no great surprises either as the big banks have all passed."

PETER CHATWELL, RATES STRATEGIST, CREDIT AGRICOLE, LONDON

"The names we have seen coming with failures are the smaller ones but no surprises. The important thing is the big names have so far been solid.

"I haven't seen anything which is a concern in the banks that have passed ... Already government bond spreads are all tightening and that's the sentiment that's still going to be in place (next Monday)."

STEPHEN POPE, CHIEF GLOBAL EQUITY STRATEGIST, CANTOR FITZERGERALD, LONDON

"I see nothing stressful about this test. It's like sending the banks away for a weekend of R&R.

"If you see Portuguese and Spanish banks trading higher (on Monday), I will be looking to sell."

PHILIPPE GIJSELS, HEAD OF RESEARCH AT BNP PARIBAS FORTIS GLOBAL MARKETS, BRUSSELS

"This is not surprising that most of them have passed -- the results are in line with expectations. The market will find good news and bad news in this and the market action on Monday and Tuesday will be very important for the rest of the month. But we will continue to be volatile."

MARK O'SULLIVAN, DIRECTOR OF DEALING AT CURRENCIES DIRECT

"I just think it's a political mish-mash, a bit of a compromise. People will think that the threshold to pass was set too low."

ION-MARC VALAHU, GENEVA-BASED INDEPENDENT TRADER

"If you're not accounting for the trading book, you're not showing the full picture."

FRANCOIS SAVARY, CHIEF INVESTMENT OFFICER AT REYL

"These are tests which are not really that significant. They do not appear to be factoring in the risk of a sovereign default, which slightly reduces the quality of the test."

IAN STANNARD, SENIOR CURRENCY STRATEGIST, BNP PARIBAS:

"The initial reaction so far suggests the tests were not as stringent as they could have been, and the market remains slightly cautious. We'll get a real reaction next week when the results are fully digested and we get a clearer picture.

JAMES HUGHES, MARKET ANALYST AT CMC MARKETS IN LONDON

"It was too lenient. We were expecting 10 banks to have failed but only seven failed. No listed banks failed. It hasn't allayed any of the fears that were there, and all the questions that were being asked before are still going to be asked."

GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE

"The broad participation in the stress tests and the publication of results is an important step for more confidence on markets. This has increased the transparency about the resilience of European banks.

"It is a positive sign that all participating German banks without exception fulfil the supervisory requirements even in the unlikely scenario of a serious collapse in growth.

"Upon assessing the results, it is important to note that in the special case of HRE, the stress test was not able to take into account the restructuring process that has already been launched.

"Despite the generally pleasing results of the stress tests, it is still necessary to achieve further progress in the consolidation of the Landesbanken sector."

BANK OF FRANCE GOVERNOR AND EUROPEAN CENTRAL BANK GOVERNING COUNCIL MEMBER CHRISTIAN NOYER

"The hypothesis of a (sovereign) default is excluded because the European states, especially in the Eurozone, have put several hundreds of billions of euros on the table with the support of the IMF to make this hypothesis completely excluded.

"This exercise is much heavier and more ambitious than the U.S. exercise which focussed on only twenty some banks. This one involves two thirds of the European banking assets (and 80 percent in France). It is a very representative sample."

THOMAS NAGEL, TRADER AT EQUINET, FRANKFURT:

"The results came in as expected so that box can be ticked. However, I wouldn't be surprised if there will be some voices in the market in a couple of minutes that point to the lack of credibility of the tests."

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, WELLS FARGO BANK, NEW YORK

"There's no major surprise so far in the results of the tests. Most of the institutions that failed, were expected to do so. Details of the tests still need to be scrutinized but the issue remains whether the tests were too soft on European banks. But it is too soon to determine that at this point.

"Still, there's nothing in these reports that is a true positive and really supportive to the euro."

BULENT BAYGUN, HEAD OF U.S. INTEREST RATE STRATEGY AT BNP PARIBAS IN NEW YORK

"Rates backed up by a couple of basis points immediately but given that a lot have passed the general sense is 'is this something credible?' really. So I'm not sure if there is going to be follow-through to the rate backup. If equities begin to react negatively to this as something that is not quite credible...that's going to bring down Treasury rates also."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The market expectation was that you were going to have about 10 bank failures -- two from Germany, one from Greece and about six from Spain -- and capital shortfalls totalling at least 100 billion euros. Final results of fewer than six failures would have been worse for the market than twelve failures because six failures would lack credibility in the market. It's better to have people believe that the tests have been too tough rather than too easy."