Companies Do Not Trust European Stress Tests

Should you? 

From the FT

Leading UK and continental European companies are increasingly shunning banks from Spain, Italy and even Germany because they do not believe the Europe-wide stress testing of banks gave a true picture of their financial health.

Corporate treasurers from groups with revenues of more than $240bn told the Financial Times they were conducting their own tests to gauge for themselves banks’ robustness.

“What we are increasingly concerned about is credit risk,” said the treasurer of one of Germany’s largest industrial companies. “Even after the stress tests, we have to ask ourselves: are the banks healthy? The tests have opened up more questions than they have answered, especially here in Germany.”

Stuart Siddall, chief executive of the Association of Corporate Treasurers, said companies were taking a more proactive approach to assessing how financially strong banks are: “Everybody is spending a lot more time today on counterparty risk than they did before.”

Counterparty risk – the risk that a bank will default and be unable to meet its obligations – shot up the list of concerns of companies after the Lehman Brothers collapse two years ago.

Those worries had again intensified around the time of the official European bank stress tests in July, several treasurers said.

“There is an element of whether the emperor has any clothes on and what to do if he doesn’t. The stress tests were a joke,” said the treasurer of a large European media company. ...

A treasurer at a FTSE 100 company in the UK said: “We have no business with Spanish banks and a couple of Italian and German banks. If US banks are refusing to deal with these guys, then why should we?”

I doubt this is over.

Comments

[Jonny]

Lest ye think no one's reading your stuff, I'll note that the above shouldn't be surprising. The US banks know how unlikely it is that the stress tests were anything but for show, since their own stress tests were the same, and the only reason many of them are still solvent is that their insolvency was hidden via technicality (suspending mark to market).

[Nigel N.]

No one in their right mind should 'trust' anything in Europe after this year. Seems like one domino falls after the next over the summer/fall. Unless you love taking unnecessary risk I would steer clear as well.

[dacian]

Hello

Is this blog still active? I miss it!

thanks

[psychodave]

Toro was usually so solicitous with his readers . . . I'm sure he'd've told us if he'd died.

[Toro]

I haven't died, but thanks for asking.

I'll be posting in a bit.

T.

[alan smithee (kerry)]

Toro, could you post on the running of the bulls? Every third post would be good; just talk about urs- or bov- ines.

[Peter]

psychodave's and Toro's posts on Oct. 28, 2010 are two of my alltime (one word?) favorite posts, on any topic-ever. I would recommend this exchange to pundits, politicians, and to people-everywhere; the high level of civility in the nudge and counter nudge makes me smile each time I return to Toro's blog in search of a new post. Thank you, gentlemen.

Peter

[dacian]

"I'll be posting in a bit."
It's getting late here :)

"I haven't died..."
Sure?

Thanks T. and I hope to come back here and read interesting posts like in the past.

[psychodave]

@dacian
What do you think of CSCO at these price levels, for a long term (5 - 10 year) investment?

[psychodave]

@dacian
THANKS!

I liked your CSCO link.

Re: your "pays no dividends", did you read "Cisco said in September it will initiate its first dividend, starting in the fiscal year that began last month."?

I also liked the article's "The size and timing of the payout will depend on tax laws and repatriation policy, because much of Cisco’s cash is abroad".

Yum, non-dollar denominated assets, right on time for Bernanke's QE2.

Re: "Cisco Insiders Sell 6,620,750", I thought Benjie Graham recommended buying in times of business weakness & low stock prices.

I'm enough of an amateur to be really bad at selling low, so I concur fully with your "Maybe if Chambers steps away".

I've never thought him particularly strong at capital allocation. I can say that, when they take over somebody, they're not there to just fire a bunch of people, they implement signal(dumb pun) improvements to the acquisition's hardware and technology.

[psychodave]

Happy new year to all!

I've been derelict, haven't even checked this site since before Xmas.

It is a great comfort that, in light of the "collapse" in Muni paper and the skyrocketing U.S. stock market, I can come here and confirm that nothing worthy of note, much less blog post, is going on.