Hedge Funds European Banks
Hedge Funds Awaiting Stress Test of European Banks
Hedge funds are looking forward to the results of the stress test on European banks which will be released on July 23. If the results are positive for the banks and Europe, the stress test will show that the European recovery is working and bond and share prices will likely spike. On the other hand, if the tests show that banks are overexposed to sovereign debt the opposite will occur. Hedge funds are set to cash in on the instability surrounding European banks.
Investors perceive the tests as being too little, too late. The US carried out a similar checkon its banking system last year, concluding that banks needed a recapitalisation of $75bn (£50bn). US banks have subsequently enjoyed a period of stability – despite the fact that some of them are still battling with the effects of the credit crunch.
In Europe, speculation about the exposure to volatile southern European bonds has hit the share price of banks such as Santander. The tests are expected to show banks' exposure to sovereign debt, but may leave out bigger parts of their balance sheets, such as loans or other fixed income products, a hedge fund manager said.
"I think this is all nuts, an over-simplification of what's going on," he said. "But it could happen that the market calms down for a few days, and it falls again." Source
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