Our stress tests are better than your stress tests.
In the case of the US stress tests for banks versus the stress tests for European banks, there is no contest. Round two of the US tests concluded last week and several of the big guys were permitted to raise dividends and announce share repurchase programs. A few more were given permission to issue more shares to pay TARP back. That will lead to dividend increases, probably by year-end. This is real money that is being returned to long-suffering shareholders and is a very strong statement that the banking system has survived and is beginning to thrive. Beginning is the operative word.
Success has a thousand fathers and failure is an orphan. Lots of people and institutions will, and should, line up to claim a piece of the glory associated with saving the financial system. That's remarkable in a way, since nobody or no institution seems to have helped cause the crisis. Even Angelo Mozilo of the disgraced Countrywide insists he did nothing but good work. The boys at Washington Mutual are being sued, and someone in authority thinks even their wives are complicit so they are being sued as well. But they insist they made nothing but sound loans. Forget the loan issue. Imagine bringing home a lawsuit to your wife's lap? These guys should hope they are sent to jail. They'll be safe there.
The European stress tests are another issue. There is no complete line of uniformity and each country can tweak the test the way they want. I am far from expert, but I worry about sovereign credit still going bad in the Euro zone. Since European banks own the countries' bonds, I would be very leery of any stress results. Bad sovereign debt can still topple the Euro banks. After stress test round one, only a handful of banks were said to be in danger. Almost as though on queue, the Irish banks, which had passed the test, failed in the marketplace. My bet is the money of investors will flow to the major banks in the US, and it's good to see them back.
Bullies usually run when confronted.