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Bank Stress Tests; results @ 5pm today


HarshBuzz

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Deserves its own thread I feel.

In case you are an ostrich and haven't been following the financial news recently, there's a reasonable guide to the stress tests here.

AIB and Bank of Ireland are the two banks being stress-tested here. It will be fascinating to see the test results released later. I have a problem with the relative opacity of the stress criteria and also with the fact that the tests are being carried out by the national regulator. That aside, the tests promise to be quite informative and may (if market participants are happy with the test criteria) serve to increase confidence in the European banking sector.

Keep an eye on the CEBS website for the test results. Can I suggest that we discuss the results here?
 

cjudge

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I'm sure the banks' PR people are prepping the CEO's for the public spin. AIB in particular must be worried. If the Regulator doesn't make adequate or sufficiently clear disclosure, the market will lose confidence in these banks. If one bank emerges better than the other, depositors will vote with their feet.
 

HarshBuzz

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things to watch out for (in my humble opinion):

  • Bank of Ireland; expect a pass, they have completed their capital raising program as decreed by Mr Elderfield and should have little exposure to a further sovereign debt shock (small prop trading book)
  • AIB; much more interesting. Will the regulator give them a pass based on their projected capital raising?
  • Spanish cajas; could be nasty!
  • Depfa\HRE: definite fail (duh). Will any other German banks be marked down? :shock:
  • Detailed criteria for the tests. Watch for any hint of a fudge.
Other musings; Irish banks get away relatively lightly under the terms of the stress test. Neither of them are serious market players in terms of sovereign debt. What would be fascinating (in the bad way) would be a stress test at least partially based on a further deterioration in the quality of their mortgage loan books.
 

HarshBuzz

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Macro test criteria:


The resilience of banks will be tested under two macroeconomic scenarios –baseline and adverse – each of which assumes a predetermined path for key economic and financial variables. The CEBS has not revealed the full range of variables, but GDP, unemployment, inflation, and interest rates are the ones explicitly mentioned (presumably house prices will also play an integral role). Details about the magnitudes of the various parameters and their differences between the two scenarios are also sparse, but we do know two tidbits:
  • * The baseline GDP path for each country will be the European Commission’s latest economic forecast for 2010 and 2011 (Table 1). The adverse scenario will then assume a -3% growth deviation from this baseline for the EU as a whole, but we don’t know how this 3% shock will be distributed among the member states.
Watch very, very carefully to see how this is applied in an Irish context. Personally I'd be stress testing against a further 30/40% fall in house prices.
 

SideysGhost

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THe only outcome to offer stability.
Fail.

Actually the only outcome to offer real stability in the long term would be to have these turkeys declared insolvent and wound up.

Spoofing and fudging the numbers and cooking the books to pretend that all is wonderful in the garden of St Lendahand only drags out this zombie apocalypse, potentially for decades to come.

People in Ireland really need to learn to deal with the facts as they really are, get over things, and move on. Infantile childish race grimly clinging to an endless series of comfort blankies.
 

yehbut_nobut

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As long as the fundementals are sound, that's the main thing. Apparently.
 

cjudge

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Thanks SG. I meant stability for those banks, but I agree it wouldn't last long. The inevitable just terrifies the government. Anglo should have been let go to the wall. Apart from helping out FF's builder/developer friends, anyone know how significant the involvement of NTMA with that bank has been in terms of the decision to prop up Anglo, and how much of our pensions are in there?
 

SideysGhost

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Thanks SG. I meant stability for those banks, but I agree it wouldn't last long. The inevitable just terrifies the government. Anglo should have been let go to the wall. Apart from helping out FF's builder/developer friends, anyone know how significant the involvement of NTMA with that bank has been in terms of the decision to prop up Anglo, and how much of our pensions are in there?
Aye all the banks, stockbrokers, pension funds and investment houses were all up to their necks in one anothers shares. Anyone with a private pension should check their annual statements for the last 3 years very carefully - you'll probably find that huge wodges of your cash have vanished. Ask the real questions - why was a small bank that almost exclusively catered to one small market segment (builders) "systemic"?

Because every other overpaid drooling idiot in every other Irish bank and pension fund believed that "property only ever goes up" and Anglo were therefore a sure-fire one-way bet to untold riches, and they all piled in and filled their boots.
 

Cassandra Syndrome

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The fact that AIB and Bank of Ireland are going to pass shows up how much of a soap opera these tests are.

The reality is, the business model for all the banks is very finite and doomed. They cannot survive on their own 2 feet. They need central banks and in a lot of cases governments to support their fake but collapsing balance sheets.

Sooner or later governments and central banks will not be able to support themselves. Then maybe we may finally be able to remove the chains from our ankles and live life.
 

Cassandra Syndrome

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Aye all the banks, stockbrokers, pension funds and investment houses were all up to their necks in one anothers shares. Anyone with a private pension should check their annual statements for the last 3 years very carefully - you'll probably find that huge wodges of your cash have vanished. Ask the real questions - why was a small bank that almost exclusively catered to one small market segment (builders) "systemic"?

Because every other overpaid drooling idiot in every other Irish bank and pension fund believed that "property only ever goes up" and Anglo were therefore a sure-fire one-way bet to untold riches, and they all piled in and filled their boots.
+1

If people could get an opportunity to trace what happened to their pension funds there would be a civil war. Its truly shocking, I wouldn't even ruin Ponzi's name by refering the schemes to that.
 

cjudge

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+1

If people could get an opportunity to trace what happened to their pension funds there would be a civil war. Its truly shocking, I wouldn't even ruin Ponzi's name by refering the schemes to that.
Yes, seriously, Somers did express concerns about Anglo, but it appears invested large amounts there. This needs to be investigated and publicised - and I am told the information will be alarming - as if we needed any more!
 

Cassandra Syndrome

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Relax folks. Ingrid Miley is on the News at One now, telling us everything is great now.
 

constitutionus

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things to watch out for (in my humble opinion):

  • Bank of Ireland; expect a pass, they have completed their capital raising program as decreed by Mr Elderfield and should have little exposure to a further sovereign debt shock (small prop trading book)
  • AIB; much more interesting. Will the regulator give them a pass based on their projected capital raising?
  • Spanish cajas; could be nasty!
  • Depfa\HRE: definite fail (duh). Will any other German banks be marked down? :shock:
  • Detailed criteria for the tests. Watch for any hint of a fudge.
Other musings; Irish banks get away relatively lightly under the terms of the stress test. Neither of them are serious market players in terms of sovereign debt. What would be fascinating (in the bad way) would be a stress test at least partially based on a further deterioration in the quality of their mortgage loan books.

theres alot in that i agree with HB.

Putting on me conspiracy hat the market seems to believe theyll both pass too as theyre up on the stockmarket and that was the trend since yesterday.

usually if theres any doubt they ususal suspects shyte themselves enmass till the results are out so i think those in the know have been making soothing noises. AIB is the one to watch though as theres still alot they have to do to get where BOI is.

newstalk are saying that the results should be out by 5 so guess we'll see then

still fun day for those of us addicted to this stuff. been hearing things about some of the eastern european banks too (i THINK latvias biggest, though could be they said lithuaninas , may not be up to scratch either ! )

lots of nervous heads out there wondering whatll happen.

apparently when the yanks did something similar to their banks it resulted in a 36% increase in the share prices of their banks. seems to me the EU is trying to do the same to the european banks. problem is were WAY more exposed to property than they were and the yanks were fairly damning in their tests. if theres ANY sense of spinning thisll fall flat.

TBH cant see it doing much to the share prices anyway. most if not all of this is factored in already as its been well flagged.
 

HarshBuzz

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the Spanish Finance Minister was spoofing that all of the cajas got a Pass

if this is true, the Stress Tests are a pile of poo
 

Cassandra Syndrome

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Stress tests are irrelevant - based on sovereign trading book debt only

The majority of people believe that these stress tests are performed on all the "assets" on the banks balance sheet. Its only on the Sovereign debt, and even with that its only on the trading book debt and not on the debt they are holding to maturity.

So I wonder what accounting tricks were used in the past couple of months? Any bank that fails these tests must be completely rotten.

Confirmation That Only Sovereign Bond Losses On "Trading Books" Will Be Considered Validates Stress Test Irrelevancy | zero hedge
 

HarshBuzz

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The majority of people believe that these stress tests are performed on all the "assets" on the banks balance sheet. Its only on the Sovereign debt, and even with that its only on the trading book debt and not on the debt they are holding to maturity.

So I wonder what accounting tricks were used in the past couple of months? Any bank that fails these tests must be completely rotten.

Confirmation That Only Sovereign Bond Losses On "Trading Books" Will Be Considered Validates Stress Test Irrelevancy | zero hedge
this is standard accounting treatment CS

trading vs banking books = MTM vs accrual

I'm not saying it's right, just saying that's the way it is
 

Cassandra Syndrome

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