Asset managers cast doubt on stress tests

Ignis Asset Management and Schroders have expressed mixed reactions on the data used for the European Union (EU) stress tests last week.

Both groups agreed the stress tests were flawed as they failed to impose strict capital requirements or test for a sovereign default or restructuring.

Three-quarters of fund managers and economists asked by the Wall Street Journal and Bloomberg in June expected Greece to default or restructure. (continues below)

Despite this, Ian Ormiston, the manager of the Ignis European Growth and Smaller Companies funds, says the large banks revealed enough details of their balance sheets to attract investors and pull away from the smaller banks. He expects BNP Paribas, Santander and Unicredit to outperform.

However, Jamie Stuttard, the head of European and UK fixed income at Schroders, and Roger Doig, a credit analyst, reveal a long list of balance sheet items the EU failed to disclose.

These include residential mortgage-backed securities, inter-bank lending and all assets banks hold to maturity.

German banks such as Deutsche Bank, DZ Bank, Postbank and Landesbank Berlin failed to disclose any government debt positions, Schroders says.

The National Bank of Greece, which passed the stress tests, is also holding more than three times its equity in Greek government bonds, which escaped attention because of the number of bonds being held to maturity.