Capital Wanted. Urgently.
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As European banks are under further pressure to raise 114 billions by June and reach a 9% Tier 1 capital European markets are and will be under further pressure. The deleveraging process has already started with several European banks selling profitable operations or reducing their presence in Eastern Europe and Latin America. The current need of recapitalization is not an isolated problem of peripheral Europe but includes German and French banks.

In this environment of forced deleveraging European banks might limit their future profitability and limit their future growth. There can be no resolution of the European crisis without first tackling the banking recapitalization issues.

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Austerity and Fiscal Union might not be the right answer
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The fiscal union pact fell short of of both the market and ECB expectations. I don't think that the action taken by European leaders was sufficient to lead to a prompt resolution of the European crisis.

Politicians are essentially trying, once again, to ignore the markets and progress with their plan of austerity. But austerity with negative GDP growth is hardly the right remedy to reinstate economic growth and competitiveness. The treaty changes vetoed by the UK are facing further obstacles from Hungary and Czech republic signaling that the route to a fiscal union is not as short as expected.

Europe in the long and short term
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While in the long term some of the solution presented at the summit might restore European credibility I don't think that the Government refinancing situation will be sustainable without a more decisive, concerted action. Europe has to work both on both a short and long term solution and, essentially, end with decisive action the crisis of confidence is facing.

Opportunities in the storm
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Despite the very difficult environment investors can benefit from low valuations and focus on selective equities with good growth prospectives and simple business models - balancesheets. Some banks with a stronger capital base might also be a good opportunity. Gold might also resume its rally in 2012.

Strategy: In short
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- The European banking crisis is very much interconnected with the European Sovereign debt crisis so until the process of recapitalization is completed there will still be high volatility and uncertainties.
- European fiscal union is still far from being a concrete reality. European leaders should work on both a short term financing solution and a long term fiscal one.
- Opportunities abound but the best risk/reward is probably represented by companies paying consistently high dividends, good growth prospectives and a simple business models.