Leading UK and continental European companies are increasingly shunning banks from Spain, Italy and even Germany because they do not believe the Europe-wide stress testing of banks gave a true picture of their financial health.
Corporate treasurers from groups with revenues of more than $240 billion told the Financial Times they were conducting their own tests to gauge for themselves banks’ robustness.
What we are increasingly concerned about is credit risk,” said the treasurer of one of Germany’s largest industrial companies. “Even after the stress tests, we have to ask ourselves: are the banks healthy? The tests have opened up more questions than they have answered, especially here in Germany.”
Stuart Siddall, chief executive of the Association of Corporate Treasurers, said companies were taking a more proactive approach to assessing how financially strong banks are: “Everybody is spending a lot more time today on counterparty risk than they did before.”
Counterparty risk – the risk that a bank will default and be unable to meet its obligations – shot up the list of concerns of companies after the Lehman Brothers collapse two years ago.
Those worries had again intensified around the time of the official European bank stress tests in July, several treasurers said.
“There is an element of whether the emperor has any clothes on and what to do if he doesn’t. The stress tests were a joke,” said the treasurer of a large European media company.
The companies said that they were taking measures such as talking to banks’ own proprietary trading desks to determine the health of other banks.
“We are paranoid about it and monitor market rumours very closely,” said the treasurer of another media company.
Treasurers are now also paying close attention to credit default swaps – the price of protection against a bank defaulting on its debt – as well as to share prices.
“Credit rating agencies acted too slowly,” said the treasurer of a German industrial group. “We look at banks’ health daily and adjust our limits with them accordingly.”
Companies said they regularly adjusted the limits on how much risk they would take on any one bank via cash deposits, derivative contracts or loans.
A treasurer at a FTSE-100 company in the UK said: “We have no business with Spanish banks and a couple of Italian and German banks. If US banks are refusing to deal with these guys, then why should we?”