Bank shares dive as Europe stress tests reveal €115bn hole

Shares in European financials have dropped in late trading as the latest European Banking Authority stress tests said the industry must raise €115bn in capital by June 2012.

The tests were met with share price drops after German banks' shortfall was revealed to stand at €13.1bn.

The tests also revealed capital shortfalls of €7.3bn at French banks, €15.4bn at Italian banks, and €26.2bn at Spanish institutions, including €13bn at Santander.

Santander shares fell just 2% to €5.80, but falls were sharper elsewhere. BNP Paribas fell 5.7% to €31.11, Credit Agricole was down 4.34% at €4.61, Societe Generale fell 4.5% to €19.10 and Dexia was down 8.33% at €0.330. Commerzbank dropped 9.54% to €1.28 after its own capital requirements rose to €5.3bn.

In the UK, Lloyds was down 7.4% to 25.2p at the close, with RBS down 5.5% at 20.9p, though Barclays was up 2.5% to 192p. The tests did not deem UK banks to be undercapitalised.

The FTSE 100 closed down 1.1% at 5,483.77, with the Dax down 2% to 5,874 and France's Cac 40 falling 2.5% to 3,095.

The latest tests encompassed 71 banks, with 30 banks across 12 countries seeing capital shortfalls. First announced in October, they operated under the requirement of banks having a core Tier 1 ratio of 9% by June 2012.

The results of the EBA's previous stress test, published in July 2011, revealed eight banks failed the tests, with a combined capital shortfall of €2.5bn, with core Tier 1 ratios at 16 further banks hovering just above the assessment's minimum target level of 5%.

The EBA said at the time that the capital shortfall would have amounted to €26.8bn across 20 banks had some institutions not raised capital between January and April 2011.

No France, German or Italian banks failed that round of tests. Franco-Belgian bank Dexia was among those to pass, ranking 12th out of 91 banks assessed with a forecast core Tier 1 ratio of 10.4% in 2012. But by October liquidity concerns had led Dexia to agree to break itself up into a good bank and a bad bank backed by French and Belgian guarantees.