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The correction that swept European stocks last week induced a full-blown bear market for lenders? shares. Investors are betting central-bank stress test results later this month will provide relief.
Deutsche Bank AG, which fell 11 percent in a month, and BNP Paribas SA, down 13 percent, helped send equity returns to more than 2 percentage points lower than the broader market, according to data compiled by Bloomberg. Traders eyeing the stress tests are pushing the cost of hedging against further declines to a two-year low relative to the Euro Stoxx 50 Index.
In the Asset Quality Review, or AQR, the European Central Bank will pore over 130 balance sheets as part of a broader health check of lenders? readiness for a hypothetical disruption. A positive outcome from the exam, the third in Europe since the sovereign-debt crisis in 2010, may help stem losses for banks, according to Teis Knuthsen, chief investment officer at Saxo Bank A/S?s private-banking unit.
?I would be very surprised if at this stage the AQR shows the banking sector is in a dismal state,? Knuthsen said from Hellerup, Denmark. ?Both the ECB and banks have had so much time to prepare for this. Imagine that all the banks are given the green light and told they all look fine. This has not yet been priced into the market.?
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