While only 8 banks out of 91 had failed the stress tests that took place last July, the results are expected to be radically different with those programmed by the European Banking Authority (EBA)…
According to Goldman Sachs, this time 50 European banks out of 91 could fail the tests and the capital refinancing requirements would reach 139 billion Euros.
The EBA stress tests are much more stringent than the previous ones and include more drastic haircuts. They also require bigger amounts of capital. “We finally have some real tests” according to several analysts interviewed this weekend after the release of the American bank’s note.
According to Goldman Sachs, capital refinancing requirements could even reach 298 billion Euros if the EBA raised core tier 1 ratio to 9% instead of 7%. The core tier 1 ratio floor was only standing at 5% during the month of July.
In all that is known, the bank refinancing will not be enough to stop the defiance towards the banking system or the European debt crisis. Like most analysts, those of Goldman Sachs consider that a solution can only be political.
Having observed the drop in the revenue of JP Morgan Chase & Co during the third quarter, Goldman Sachs is also anticipating a strong erosion in the revenues of investment banks.
