Credit Suisse Investment Ideas Finally stressed: Medium-term relief for better-positioned banks should continue

Highlights
Seven banks fail the stress test, implying a EUR 3.5 bn capital requirement. Stress test is more or less in line with lowered expectations taking press leaks into
account.
Neutral market reaction in the US after the European bank stress test announcement.
Further confirmation for well-positioned banks supports our stock picks.
Funding remains key for banks: Focus should remain on Spain and the Spanish domestic banks.

Finally, the European bank stress test results are out, which comes as a relief after the lengthy waiting period. Seven banks failed the 6% Tier 1 threshold under the sovereign shock scenario – one German house (Hypo RealEstate), one Greek bank (Agricultural Bank of Greece) and five Spanish institutions (Espiga, Banca Civica, Unnim, Cajasur and Diada). Another eight banks are reported as 'near misses,' including one German bank (Norddeutsche Landesbank), an Italian house (Monte dei Paschi di Siena), one Greek bank (Piraeus Bank)and a further five Spanish institutions (Colonya, CIA, Banco Guipuzcoano, Banco Pastor and Caja Sol; see Table 3).

The capital requirement under this scenario is EUR 3.5 bn, which is clearly below our expectations (see Table 1). Until the end of June 2010, European governments provided EUR 169.6 bn of aggregated Tier 1 capital for banks, which must
be taken into consideration, according the Committee of European Banking Supervisors (CEBS).

Overall, these stress test results did not come as a surprise after the various press leaks in recent days. The market had expected up to nine banks to fail, with clear focus on the Spanish cajas, the German banks and the Greek houses.