Who Is Likely to Fail Europe's Bank Stress Tests?

Investors held their breath Friday in anticipation of results of pan-European bank stress tests, due to be released later in the day.

Reports are already emerging that some banks have failed – Spanish newspaper El Pais said, quoting sources, that several Spanish savings banks, or cajas, did not pass.

European banks' shares fell early Friday, dragging the stock markets with them.

Will the results finally throw light on how deeply affected European banks are by the various market disturbances? Yes and no, various analysts told CNBC.

The Committee of European Banking Supervisors (CEBS) will publish results of the tests of 91 banks in 20 European Union countries on Friday and officials such as European Central Bank President Jean-Claude Trichet have said that this should bring back confidence in the continent's banking sector.

A bank fails the test if its Tier-1 capital ratio is below 6 percent under two scenarios: adverse scenario and adverse scenario plus sovereign risk.

"Very few banks will fail this stress test and we don't think there will be a lot of capital raising," Antonio Ramirez, analyst at Keefe, Bruyette & Woods (KBW) told CNBC.com in a telephone interview Thursday.

The Committee of European Banking Supervisors (CEBS) said the tests were tougher than the ones carried out in the US last year, because its adverse scenario is so severe that it is a once-in-20- years possibility, while the US one was considered a one-in-seven-years possibility.

Participants in a survey by Goldman Sachs said they expect 10 of the 91 institutions to fail the tests. The survey questioned 376 investors, 66 percent of them based in Europe and 23 percent in the US.

Banks in Greece, Germany and Spain are expected to need to raise the most capital, according to the survey.

Numbers Unclear

KBW has run its own, harsher stress test on banks that are listed across Europe. According to this, 10 banks are likely to fall below the 6 percent Tier 1 ratio and would need to raise 9.8 billion euros ($12.5 billion) – although the number would be higher if the unlisted sector were added, KBW specified.

The banks that would fail the KBW stress test—assuming that dividends would be cut to help preserve capital—are Greek banks National Bank of Greece (NBG), Piraeus, EFG, Marfin and Alpha Bank, Portugal's BPI, Germany's Deutsche Post Bank (DPB), Italy's Monte Dei Paschi Di Siena, Bank of Ireland and Bank Inter Portugal.

"Clearly this is a small number, but would be greatly increased if we added the unquoted sector," KBW said in a research note.

Besides the listed banks, Spanish savings banks—cajas—and German regional banks—Landesbanken—are in danger of having poor results, according to various analysts.

In a tough economic environment over the next three years, but without a sovereign default, Spanish commercial banks would lose 5 percent of their Tier-1 capital but this should be readily absorbed by their existing capital cushion, according to MF Global analysts.

Savings banks, on the other hand, would lose 22 percent of their Tier-1 capital and would need to be recapitalized, MF Global analysts calculated.

In Germany, Landesbanken are likely to suffer because, as IMF modeling shows, they have yet to account for losses incurred because of the writedowns on securitized assets, especially collateralized debt obligations, the MF Global research note shows.