Deutsche Bank: solid as a Black Forest oak. But could it fail stress tests?
 
The idea that it might outright or nearly fail the EU tests is gathering pace and adding a small chill to European markets right now.
 
The results are coming out at today, 1600 GMT.
 
Failure is a possibility according to analysts, considering the application of full CRD III  [Capital Requirements Directive]  from the Basel II Compliance Professionals Association.
 
Banco Popolare and Commerzbank would also be ‘near fails’.
 
The full impact of Deutsche Bank as a ‘near fail’ does not look fully priced in the CDS markets.
 
DB reported a Basel 2 Core Tier 1 ratio of 9.6%, 31 March 2011.
 
Adding €93bn of market risk-weighted assets, as per the Basel 2.5 requirement, results in a reduction of approximately 210bps to their Core Tier 1 ratio (Basel 2.5 is incorporated in the CRD III requirements).
 
And adjusting for a possible 100-to-150bps impact of the adverse stress test and DB may move into the near-fail territory.
 
Naturally, markets are jittery enough already.
 
In the test results, if there’s anything like the extent of bad news about a major conglomerate northern European bank failing the tests, as some in the market fear, perhaps look for #EUR #USD to head toward the neckline of the previous head and shoulders on the hourly chart around 1.4033 from current 1.4138.
 
ThSM