Lloyds Share News (LLOY)

THE EVENT: The European Union's Committee of European Banking Supervisors, or CEBS, on Friday released results showing E.U. banks largely passed a round of government stress tests, with just a few institutions found to need further capital as a buffer against further economic and sovereign risks. Out of 91 banks, seven failed the tests: Germany's Hypo Real Estate Holding, ATEbank (ATE.AT) in Greece and five small Spanish regional banks. But the overall strong grades led analysts to ask whether the tests were too easy to be judged credible. Here are some reactions from analysts on the results: * Evolution Securities: "The long-awaited bank stress tests do not seem to have been that stressful after all. This is not surprising. The last thing the authorities would have wanted to do was to set a series of assumptions that would have led to a broad failure across the euro area, as this could only do more damage to the already frail markets." "The banks that do fail the tests will not be allowed to fail in the real world. They will no doubt either raise capital from the private sector or more likely from their respective governments, as no one is prepared to undertake another Lehmans like experiment." * Credit Suisse: "The CEBS stress tests have, in our opinion, achieved a sufficient level of rigor to be taken seriously. Not all banks passed, and although the aggregate capital shortfall was small, this largely reflects the amount of capital that has already been put into the European sector." "Although the sovereign stress test disappointed many commentators by only stressing trading books, we find that the additional stress placed on the banking book in the 'additional sovereign scenario' actually compensates for this." * Barclays Capital Credit Research: "We believe the tests fell short in many respects, but we nevertheless have a positive view of the outcome. On the one hand, the tests exceeded expectations concerning disclosure of sovereign bond holdings. The majority of banks should be able to fund more cheaply." "On the other hand, the tests were not stringent enough. Investors will perceive the banks that barely passed to be undercapitalized. We expect poor spread performance from those names and they are likely to continue to face high funding costs." * Oriel Securities: "The conclusion from the stress test seems to be that the EU banking system capital levels are pretty resilient, although the CEBS did highlight the continuing level of government support within the system. We would also suggest that the stress test economic growth rate assumptions were not particularly demanding." Oriel said it was "reassuring" yet unsurprising to see four U.K. banks pass--Barclays PLC (BCS), HSBC Holdings PLC (HBC), Lloyds Banking Group PLC (LYG) and Royal Bank of Scotland Group PLC (RBS). * Exane BNP Paribas: "The bigger issue for U.K. banks is the extent (if any) to which the CEBS stress test exercise helps to re-establish confidence in debt markets and thereby improve, over time, the availability [and pricing] of term wholesale funding. Our expectations remain cautious, and we assume that Central Banks across Europe will be providing direct liquidity support to banks for several years to come." * Deutsche Bank: "Out of the 22 [Spanish] banks that exceeded the 6% Tier 1 threshold, there were six below 6.5% and another three between 6.5% and 7%. Our concerns are therefore not so much related to the size of the capital shortfall, but the potentially missed opportunity by Spain to use the stress test as a catalyst to promote a second wave of recapitalizations. "We fear that the stress test results have left the door open to further speculation about whether the resolution of the issues surrounding some smaller institutions' solvency levels are being delayed. This might interrupt the restoration of market confidence and, more importantly, make it difficult for these institutions to access term debt markets, one of the main issues the stress test was originally meant to address." * Bernstein Research: "The European bank stress test was neither the golden bullet that stabilizes European banks across the board nor is it the complete whitewash some observers have feared. Despite the great anticipation, we believe the stress test is a non-event. This is a sovereign debt crisis, not a banking crisis. The banks credit has been dragged down by the failing sovereigns, not the other way round. "Hence the stress test is a necessary tool to resolve the crisis but not the resolution. The resolution still lies with the European governments." -By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com (END) Dow Jones Newswires July 26, 2010 06:44 ET (10:44 GMT)