UBS Remains Overweight on European Banks After Test Results

“Credit growth unlikely to recover quickly,” Managing Director at UBS Reinhard Cluse says in e-mailed note. * 12 of 25 banks found by ECB report to have aggregate capital shortfall of EU24.6b have already covered their capital shortfall through capital increases this yr * “This leaves only 13 banks with an aggregate shortfall of EU9.5bn – a manageable amount, in our view” * Shortfall will have to be covered over next 6-9 months, so European banking sector should be sufficiently capitalised again by Q3 ’15. * “We suspect that the demand for credit is likely to remain weak. As such, an improving banking sector is perhaps a necessary, but not a sufficient condition for a more meaningful recovery in credit growth -– and in the overall health of the Euro zone”

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