Banks Have Already Passed Stress Test: Analyst
The existing US banks have survived tough economic conditions over the past half year, which can be assimilated to a real-life stress test, Bob Parker, vice-chairman at Credit Suisse Asset Management, told CNBC.
"You could actually argue that the last six months has been a period of maximum stress and therefore if a bank has survived the last six months, it's going to survive in the future, on the argument that economic stress can't get much worse than what we've seen in the last six months," Parker told "Squawk Box Europe."
Regulators in the US are carrying out "stress tests" of the 19 largest banks, including Citigroup , JPMorgan Chase and Wells Fargo, to try to determine how much capital any big bank might need to remain afloat if the economy goes deeper into recession.
The tests will assess what happens to profitability, leverage, balance sheet and capital ratio if the US economy continues to deteriorate. The government is not likely to announce the results publicly on Friday but instead it will let the banks know what they need to do.
The terminology used in making public the results of the tests will be crucial, Parker said.
"The major problem is actually what the US Treasury is going to announce in terms of who has passed or, very dangerously, who possibly hasn't passed the stress test," Parker said.
"I think it's inevitable the US Treasury will come out with a very opaque statement saying all banks have passed but then there may well be in the months to come statements saying various banks need additional capital to get leverage ratios down and to improve their Tier 1 capital," he added.
Parker evoked the case of UK bank Barclays, whose shares have jumped since the Financial Services Authority gave it a clean bill of health earlier this year.
Speculation about the results of the stress tests has been rife, as well as various scenarios advanced by brokerages and analysts.
On Thursday, Keefe, Bruyette and Woods analysts said US banks may have to raise as much as $1 trillion, after they carried out their own stress tests on 17 banks of the 19 surveyed by the government.
JPMorgan, KeyCorp , PNC Financial Services Group, Wells Fargo and Fifth Third Bancorp are among the banks that may need to raise capital, the brokerage said, according to its own analysis.
Bank of America is the most likely of the 17 banks to need another round of government
capital — as much as $15 billion to $20 billion — from the Capital Assistance Program, according to KBW analysts.
But the government's public announcement, due on May 4, is unlikely to be as clear-cut as analysts' opinion, Parker said.
"The problem is you just cannot make a statement saying a bank has failed a stress test, because then it's going to result in an immediate collapse in confidence in that bank," he said.
