European Banks To Get Hit by Invisible Clue Bus Everyone Else Sees

While the pressure builds on Greece, the IMF, and the ECB to actually do something instead of talking about punishing speculators that turned out to be Greek banks, another issue has been starting to get attention: Greek banks.  And European banks by extension.

From the Wall Street Journal:

LONDON (Dow Jones)–The cost of insuring debt issued by Greece’s four largest banks sharply widened Thursday on fears they may be struggling to borrow short-term cash.

The annual cost of insuring EUR10 million of bonds issued by EFG Eurobank SA(EUROB.AT) rose EUR41,000 to EUR452,500, while the cost of insuring a similar amount of debt issued by Piraeus Bank SA (TPEIR.AT) rose EUR63,000 to EUR474,100, according to data provider CMA DataVision.

via Greek Bank CDS Spreads Sharply Widen Thursday – CMA –

Which leads us to this handy chart by Tim Backshall at Credit Derivatives Research.  The spread between CDS on financial names vs. non-financial names, represented by the blue line, is widening:

Meanwhile, FT Alphaville had this chilling chart from IHS Global Insight:

That points to a full-blown “run on the bank” extended to the entire country’s banking system.  Yet, when I take a look at Euribor and the EONIA swap curve, what do I see?  Extreme complacency.  First, two views of Euribor rates:

Note how little stress there has been as this whole situation has played out.  Evidently, you’ve got a whole continent of fat, dumb, and happy counterparties playing fiddles as Rome burns…

I can only imagine what will happen when (I don’t think it’s a question of “if” anymore) we see a systemic banking failure in one of these PIGS countries.  Near-term rates will shoot through the roof since a lot of the banks in Europe rely on wholesale funding markets more than banks here in the US or in other countries.  It all serves as a reminder to me of one thing:

The Chinese proverb wishing you to live in interesting times?  Yeah, that’s a curse

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Filed under finance, government, International, macro, Markets, Way Forward, You're kidding

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