Europe: Large banks appear more resilient to economic stress - BBH

Research Team at BBH, notes that the European Bank stress tests results were announced after the North American markets closed for the week. 

Key Quotes

“The only bank whose capital would be wiped out was Monte Paschi, who hours before announced a new plan, approved by the ECB.  It made the stress test result immaterial.  Only one other bank that tested, Allied Irish, had a "fully loaded capital ratio" of less 5.5%, which is regarded as an important threshold.  The Euro Stoxx Bank Index is down 2% so far today, underperforming the broader European markets.     

Several banks will likely raise capital, but officials will find solace in that large banks appear more resilient to economic stress.  Perhaps more of more immediate concern to investors is not the stress situation as much as the continued grind of the status quo.  Negative interest rates, weak growth in lending to businesses and households, and a new regulatory environment that is exerting pressure to de-lever creates formidable challenges.  Capital gains, for some investors, may blunt the sting of negative interest rates, but this is not the purpose of fixed income investment for many.”