Wall Street has been known to have an ugly day on more than one occasion the past year or so as details of the eurozone’s struggling economy have escalated fears that the profits and revenues of multinationals are at risk. So the question Monday morning is whether investors will be satisfied with the results of a yearlong stress test of Europe’s 130 largest banks. The European Central Bank announced Sunday that 25 banks — in Italy, Cyprus and Greece — face a capital shortfall of $31.6 billion (25 billion euros).
“All the names on the list are known distressed cases,” said Tim Kelly, chief strategist at ForexTV. “Otherwise, the results are, on the whole, on the positive side.” Most experts agreed Sunday that the eurozone’s biggest banks largely passed a major test on the health of its books. But with market volatility on the upswing in recent weeks and questions about the test’s methodology lingering, it’s not a sure thing that investors will shrug off the result, analysts say.
Last week, stocks broke a four-week losing streak and ended sharply higher. Bolstered by better-than-expected third-quarter earnings from a number of major players, including General Motors and Caterpillar, the Standard & Poor’s 500 posted its biggest weekly gain of the year: 4.1%. The Dow Jones industrial average and the Nasdaq composite also finished in the black, settling some fears that the market was headed for a significant correction.
However, investors remain on edge, and now they must digest what Sunday’s report means for the future of the European economy. The ECB conducted the stress tests with the goal of strengthening the continent’s banking system so that more loans could be made to businesses and consumers at an affordable rate. The good news: 12 of the 25 banks have already covered their shortfall by raising their capital by $19 billion (15 billion euros) in 2014, the ECB said.