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European Banks Dive in 2016

There’s a fallout when it comes to the shares of the European banks. None of it took place at once, but on a continuous basis over the past few months. So far this year, some of the major European bank shares have lost nearly half of their values, reports “CNN Money” in a recent article.

Among the biggest losers are Allied Irish Banks, Barclays, Credit Suisse, and Deutsche Bank. Especially surprising is the downturn in Deutsche Bank’s shares. After the 2008 financial crisis, it seemed that this huge German bank is well positioned. But, since March its shares are down from $20 to $12, a 40% decline.

These declines are partially due to the upcoming “stress tests” at 51 of the biggest European banks. These tests are intended to show whether banks have enough capital to withstand financial shocks. And it doesn’t seem that many banks are well positioned for another economic shock.

“The banks are poorly capitalized. They still have bad assets on their balance sheets, like bad loans,” states Diane Pierret, finance professor at University of Lausanne. She claims that 29 out of 51 banks would fail these tests if they were done with the American standards.

Pierret estimates that these banks need to raise around $130-140 billion to recapitalize themselves. The Italian banks are especially in precarious position. Their bad loans are piling up.