Europe’s plan to address weak banks risks unraveling
Just add items to create a watchlist now: or Cancel Already have a watchlist? Log In By Sara Sjolin LONDON (MarketWatch) European stock markets closed mostly lower on Wednesday, as discussions among U.S. lawmakers about raising the debt ceiling and difficulties with agreeing on a budget weighed on sentiment. The Stoxx Europe 600 index /quotes/zigman/2380150 XX:SXXP -0.27% dropped 0.1% to close at 313.02, partly erasing a 0.2% gain from Tuesday. SABMiller CEO: Whats on tap Alan Clark of SABMiller PLC on sharing power with his predecessor and selling beer on six continents. Its been a couple of odd few days. Theres not a great deal to lead the markets along and it hasnt been the case for a while. Economic data is still the main focus, said Keith Bowman, equity analyst at Hargreaves Lansdown. It feels like a bit of a holding phase and theres no obvious near-term catalyst. In a few weeks assuming that the debt ceiling is resolved then the focus will fairly quickly turn to the corporate result season, he added. Among notable movers in the pan-European index, shares of Carnival PLC /quotes/zigman/321074 UK:CCL +0.62% /quotes/zigman/322132/quotes/nls/ccl CCL -0.15% lost 6.7% after Morgan Stanley cut the cruise-line operator to underweight from equal-weight. On Tuesday, Carnival laid out its profit expectations for the fourth quarter, which were below analysts forecasts. On a more upbeat note, shares of ThyssenKrupp AG /quotes/zigman/157034 DE:TKA -1.77% jumped 3.7% after European investor Cevian Capital said it has acquired a 5.2% stake in the German steelmaker.
“The U.S. turned the leaf on its banking crisis in 2009,” said Francesco Papadia, former head of the ECB’s financial market operations, who helped guide the central bank’s management of the financial crisis. “Now the euro area has a great opportunity, probably the last one, to achieve this.” But the political will to forge full banking union has waned as the heat of the crisis has passed, and German reluctance to back a central fund that would potentially come to the rescue of any troubled euro zone bank means that the ECB is preparing to take on its role from late next year in a dangerous vacuum. The ECB, both for its own reputation and the future of the bloc, is under pressure to ensure that banks undergo a thorough health check that will force them to recognize hidden losses. But without a pan-euro-zone bailout fund, such tests could highlight problems without a convincing solution, potentially undermining the banking union project before it has fully taken off. “To really solve the asset quality concerns, you need to have a backstop. If you find a gap, you need to be confident you can fix it,” said Ronny Rehn, analyst at Keefe, Bruyette & Woods (KBW) in London. “If you don’t have this, then we might have to lie to ourselves again and say there is no problem because we couldn’t afford to fund the problem.” CONFIDENCE OR COMPROMISE The ECB wants to check the health of big banks, under a so-called Asset Quality Review (AQR), before taking over their supervision. This will also help shape wider testing of banks outside the euro zone, overseen by the European Banking Authority (EBA). In Frankfurt, home of the ECB, there is growing resignation that a pan-euro-zone backstop is unlikely and that countries may be left to prop up their banks alone, as they were when the financial crisis struck. “We’ll have to have national backstops in place,” ECB President Mario Draghi told the European Parliament earlier this week. “If it (single resolution scheme) is not there in place, it will be up to the national authorities … which is suboptimal, of course.” Such a compromise exasperates bankers, who want confidence restored to the sector so their cost of funding drops. “The ECB, EBA and EU are all saying that the AQR and stress tests will be stringent,” said a credit banker at a large London-based investment bank. “It’s easy for those to say that; they don’t have to come up with the money.