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Brussels - The European Central Bank's landmark review of eurozone banks will have to ask lenders to raise an additional €51bn to be credible with markets, a Goldman Sachs survey of large institutional investors has found.
The survey of 125 institutional investors from across the globe also found that nine of the 130 banks being tested were expected to fail, with capital shortfalls most likely at Italian, German and Austrian banks, according to a document circulated by Goldman Sachs on Tuesday night.
The ECB is examining whether banks have properly recognised losses in a bid to finally draw a line under doubts about eurozone banks' balance sheets before it becomes their supervisor on November 4. Results are expected around October 17.
Producing a result that is in line with market expectations is key for the ECB, since previous rounds of EU bank tests in 2010 and 2011 were roundly discredited for capital demands and failure rates that were far less than what investors deemed reasonable.
Investors' average expected capital demand is €23bn higher than a previous Goldman survey in October 2013.
The €51bn is for capital needs that are outstanding after capital that banks have already raised, including €47bn they have raised since October.
Expectations of an "extreme" outcome that would require banks to raise over €100m fell sharply from 18% in October to 8% now.
The exercise's credibility amongst investors has improved since then, the survey found, with 89% of investors now expecting the tests to be credible, up from 70% in October.
Three quarters of investors surveyed said they expected the exercise to be positive for bank valuations, with banks set to "outperform" the broader equities market once the results are announced.
Eurozone banks have traded at lower valuations than their US peers in recent years.
The large listed banks seen by investors as most likely to have capital shortfalls include Italy's Monte dei Paschi , Germany's Commerzbank and Portugal's BCP . Three Greek banks - Piraeus, Eurobank and Alpha Bank - are also among identified by investors as most likely to need capital.
