2010 - A Year Of Banking Dangerously

From recovery in Asia to hot growth in Latin America to seemingly near-collapse in Europe, it is a yeoman's task to try to sum up the 2010 world of international banking in under 800 words. Perhaps, though, that is the summation; Asia came back, Latin America never left and Europe struggled to hang on through the latest crisis. Suffice it to say, it sets the table for an interesting 2011. 

Asia - Been There, Done That, Learned the Lesson
To some extent, it is probably fair to say that between Japan's property bubble-fueled bank bubble and collapse (and a 20-year zombie economy), Hong Kong's boom-bust real estate markets and Southeast Asia's debt-fueled over-expansion of past decades, Asian bankers had already seen this movie before. Consequently, while the decline of global trade during the Great Recession did no favors for these economies, the underlying models were in better shape and 2010 saw good rebounds in many markets. (For more, see 7 Ways To Position Yourself For Recovery.)

Publicly-traded Korean banks like KB Financial (NYSE:KB) and Woori (NYSE:WF) lagged the U.S. S&P 500 (Shinhan (NYSE:SHG) outperformed), but were still up for the year and did quite a bit better than American banks on the whole. Japanese banks like Mitsubishi UFJ (NYSE:MTU) and Mizuho (NYSE:MFG) were likewise "yeah, but" performers - yeah, they did better than most American banks, but still not all that well.

Elsewhere in Asia, there was substantially better performance. Indian wonder twins ICICI (NYSE:IBN) and HDFC (NYSE:HDB) were strong stocks this year, as was Australia & New Zealand Banking Group (Nasdaq: ANZBY.PK). While China's efforts to cool inflation impacted the likes of China Construction Bank, Industrial & Commercial Bank, and Bank of China, the share price performance still holds up relative to many regional U.S. banks.


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Europe's So-Called Stress Test

So, all of that build up and all of that press ... and for this?

The results of the European banking stress tests are in ... and 84 of 91 passed. Whoop-dee-doo.

I mean, really, if 92% of the banks passed, and the only failures are an already-nationalized German bank, five unlisted Spanish banks, and a Greek bank, what was the point?

Are European banks in better shape than people think? Yeah, probably. I own Societe Generale (Nasdaq: SCGLY) and I happen to think the market is undervaluing that one (though I acknowledge the risk they have with sovereign debt exposure), and Santander (NYSE: STD) certainly seems in good shape.

But to only flunk 7 banks makes me think the whole thing was a stage-managed put-on designed to create phony confidence in the health of the European banking sector. Do not misunderstand; I think there are several high-quality banks in Europe these days (I would add Unicredito to that list, as well perhaps as Danske and a couple of others), but I expected a bit more "stress" from this test.

I dunno ... maybe it is late on Friday and I am just cranky. But consider me unimpressed by these results.

Disclosure - I own shares of Societe Generale