European equities are lower as the markets assess the results of the bank stress test.
While Italy’s Monte Paschi received a $5B rework on its huge non-performing loan portfolio, through a bail out by other troubled banks, however, it was just a kick the can down the road fix.
By my assessment the can did not make it to the end of the year, before more trouble ensues, while shareholders were diluted by some 80%.
So as the world’s oldest bank stumbles along, Europe’s largest bank, Deutsche, is down another 1.5% in pre-market trading as investors got a peek inside the behemoth and did not care for what they see.
The bank’s ability to withstand a protected economic shock fell from last year’s meager level as legal costs soared and were figured into the test this year. Deutsche has paid out tens of billions of dollars over the last 19 months in fines and penalties to regulators both here and abroad.
According to the test results Deutsche was the 10th weakest EU bank with Barclays finishing in worse shape.
Besides Monte Paschi, Allied Irish Bank was the only other bank to fail. Deutsche Bank has failed the Federal Reserve’s stress test two years in a row.