Markets positive on UK banks' stress tests

Published on Wednesday 21 July 2010 22:33

BRITISH banks expect to pass the stress tests being published today as some German banks were haggling over how much government debt to reveal.

European bank supervisors hope to convince markets that most of Europe's banking sector can withstand another economic downturn and losses on government debt, and that authorities can deal with those banks who need support.

Results of the test of 91 European banks are eagerly awaited by markets whose scepticism about the sector has driven up funding costs and weighed on share prices since Greece's debt woes triggered fears the eurozone could unravel.

Bank stocks were up across the board on yesterday, a sign that investors are starting to hope the worst is behind an industry whose inability to lend has been at the heart of the global crisis.

Nick Beecroft, senior markets consultant at Saxo Bank, said: "This is a carefully choreographed piece of theatre.

"It is a necessary condition for the feeling of markets security, whether it is a sufficient condition, we have to wait and see."

The Committee of European Banking Supervisors, the group presiding over the test, has asked banks to provide all holdings of government bonds although it left publication to banks and supervisors.

Disclosure could end uncertainty about the banks' exposure to Greek, Spanish and Portuguese government debt, the countries struggling most to convince lenders they can deal with high debt while economic growth remains weak.

Gerard Fitzpatrick, global fixed income portfolio manager at Russell Investments, said: "The regulators and the political leaders are effectively trying to bridge a gap of scepticism."