Euro Banks May Have $386 Billion Capital Deficit, Berenberg Says

A review of asset quality by euro zone’s banking regulators of the region’s banks may show a capital shortfall of 300 billion euros ($386 billion) to 400 billion euros led by France and Germany, according to analysts at Berenberg Bank.

The European Banking Authority and the European Central Bank are under “huge pressure” to curb concern that asset quality is inadequate, Berenberg analysts in London including Nick Anderson wrote to clients yesterday. The largest deficits may be in France and Germany followed by the Netherlands, Berenberg said.

“The EBA, the universal butt of criticism after the 2011 stress test, will be desperate not to be made a fool of again, especially with the ECB breathing down its neck,” the analysts said in the note. “The stakes could not be higher.”

The EBA last week postponed stress tests until 2014, allowing time for an ECB-led review into the assets held by some lenders in the debt-laden bloc. The EBA said the ECB asset check will “help dispel concerns over the deterioration of asset quality due to macroeconomic conditions in Europe.”

The EBA carried out the last formal EU stress tests in 2011, which were criticized for not catching shortfalls at the lenders. Eight banks failed the exams with a combined capital shortage of 2.5 billion euros. Dexia SA, the French-Belgian lender, received a clean bill of health and then failed after a bank run three months later.