THE PUBLICATION of European banks' stress test results today could lead to a wave of distressed debt deals, according to investment bankers and restructuring experts.
The results of the stress tests - due at 5pm Irish time - are expected to see about 10 of the 91 banks tested fall short of having the required 5 per cent core tier one capital, including a clutch of four smaller Spanish savings banks and three Greek banks. Germany's Helaba withdrew from the process on on Wednesday following a dispute about its quality of capital, and is expected to publish its results separately.
There will also be intense focus on the disclosure of banks' sovereign debt holdings, particularly their euro zone exposure. Both elements could potentially prove market-moving for the banks involved.
But bankers believe that an additional disclosure requirement, relating to previously unpublished details of banks' credit exposures - to other financial institutions, corporate borrowers and mortgage borrowers, all on a country-by-country basis - could trigger approaches for credit portfolios from specialist buyers.
"This is potentially game-changing," said one person involved in the test exercise. "If you are an investment bank trying to restructure other people's legacy assets, this kind of information is hugely valuable." Graham Martin, corporate finance partner at KPMG, said there would be a particular "strategic opportunity" in the geographic disclosures.
A financial services banker at a global bank said the new disclosures would be particularly welcome in relation to banks that are not listed.
One of the big surprises of the financial crisis has been the dearth of portfolio acquisitions by distressed debt specialists, but dealmakers say this is partly due to insufficient data and a persistent mismatch of price expectations between buyers and sellers.
Some banks fear the credit exposure disclosures could be incendiary.
On Monday, Germany's umbrella trade body of the country's banks warned the test's disclosure requirements could prompt "targeted speculation" against certain banks.
Analysts dismiss such complaints. "Transparency is the whole purpose of this exercise," said on London-based analyst.
The German banks' fears were "preposterous", one banker said, adding the additional information might help stabilise the markets. Some banks and countries may yet withhold some of the information required as part of the stress-test disclosures.
The board of supervisors of the European Banking Authority, which is conducting the test, held an all-day meeting yesterday to discuss the results. - Copyright 2011 The Financial Times Limited
