a) The outcome of the upcoming stress test results have been partially anticipated. The Governor of the Bank of Italy, the French Minister of Finance and the Chairman of the British FSA are confident about their
respective results. Analysis predict that the TIER 1 capital ratio of 6% would be largely achieved by the European
Major banks.

b) Obviously a stress test, to be credible, need to report some bearable bad news too. Additional fund raising
might be needed by Greek banks, Spanish Cajas and some of the German Landesbanken.
(To be noted that representative of both Spanish Cajas and German Landesbank have recently declared their confidence in the results).
The important aspect is that the outcome shouldn't be too negative - this might have a negative impact on several Asian investors that might refuse to buy European bonds in the future. The results of the tests will also have a strong impact on the Euro and in market liquidty.

c) According to Barclays Capital the capitalization required will be in the region of 85 billion euro most of which
to go to Spanish banks (36 bl) German Landesbanks (34.5) and Greek banks 8.6 billion.
Other Swiss based forecasts expect only a few banks to fall short of the 6% tier 1 capital requirement for instance
some of the greek banks at 5.6% (given that the Basel Committee regulations required only 4% this shouldn't be a
major issue).

d)The "haircuts" to be applied to Government debt seems to be around 17% for Greek Sovereign Debit, 10-11% for UK Debt, 6% for the French debt and around 4% for German Debit. Some analysis feel that this is not enough and tests
should have considered a 50% write down for Greek debts. I found this argument groundless. A Sovereign default
in Europe is very unlikely to happen.

e) The big question is IF these stress tests will have a similar impact of the american ones in 2009, namely to restore
confidence on the European banking system. My answer is almost certainly yes if, as it is expected, most of the European banks pass the tests and some objectively obvious problems are recognized, hence increasing the credibility of these tests.
This positive view is confirmed by analysis at Goldman Sachs that expects no surprises from European major banks.

In Short: To restore confidence in the European banks the stress tests should confirm that major European banks
are in good health - few exceptions might come from Greek, Spanish Cajas, some of the German Landsbanks and Irish banks but not sufficient to trouble the markets.
I think that the results will be positive and better than expected. Test methodology is in my view very appropriate.
The results should remove much of the uncertainty in the markets and a rebound of european banks is to be expected after
their publications.