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Bank derivatives boom ahead of ECB test results as investors play safe 

October 9, 2014
Business Recorder

Investors hopeful but not entirely confident that next month's European bank check will yield positive results are stacking up derivatives positions to balance optimism about the industry against worry over its performance in a faltering economy. 

The European Central Bank is expected to publish the outcome of its bank asset quality review on October 26 in a bid to convince investors - after three previous "stress tests" failed to spot subsequent problems - that Europe's lenders have sifted out their risky holdings and now have enough capital to withstand any more financial crisis-style shocks. 

However recent nasty surprises are still vivid. The euro zone banking index fell nearly 17 percent between April and August as poor economic data from Italy, France and even Germany threw into doubt a euro zone recovery while top banks like BNP , Lloyds and Royal Bank of Scotland were hit with hefty fines for misconduct ranging from sanctions violations to manipulation of key interest rates. Portugal's announcement of a 4.9 billion-euro ($6.22 billion) bailout for Banco Espirito Santo caused more pain. 

Read more: Business Recorder

 
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