Italy, Greece banks lead Europe decliners amid capital concerns

Italian and Greek banks led stock declines among the region’s lenders after European Banking Authority Chairman Andrea Enria said stress tests completed last week aren’t foolproof and more may need to be done.

Banca Monte dei Paschi di Siena SpA, the Italian lender with the biggest capital hole after a health check of European banks, slumped to a record low, and was down 16 percent at 61.35 cents at 2:30 p.m. in Milan. National Bank of Greece SA plunged 6.5 percent to 1.87 euros. The 49-member Stoxx Europe 600 Banks Index fell 0.9 percent to 187.5.

“Enria’s remarks are driving the selloff,” said Vincenzo Longo, a Milan-based strategist at IG Markets. The comments “fueled panic selling focused on Greek and Italian banks, the most severely affected by the stress tests.”

Italian and Greek banks showed the largest combined capital shortfall in the European Central Bank’s review as the two countries struggle to emerge from the financial crisis. Twenty- five lenders failed a stress test led by the ECB, nine of which were in Italy and three in Greece.

Speculation that Greek banks may need to raise more capital pushed stocks lower, said Andreas Kontogouris, an institutional sales trader at Beta Securities SA in Athens.

The stress test “was very robust and very severe. Was it foolproof? Of course not,” Enria said at an event in Berlin on Thursday. “There is always a tendency to see the stress test as a kind of end of the world scenario then nothing more needs to be done. The story is not over, even for the banks that passed.”

The EBA coordinated the region’s stress tests. Enria later clarified his remarks by e-mail, adding that the ECB review “further dispelled uncertainty on asset valuation.”

“The market finds very strange the action to move the goalposts by the person that set the rules of the stress tests in the first place,” said Thanassis Drogossis, head of Equities at Athens-based Pantelakis Securities. “And this comes at a time when half of the eurozone is gasping for air.” [Bloomberg]

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