European Financials Are Getting Slammed
European bank stocks are getting slammed today as fears over the Cyprus precedent take hold across the euro zone.
In Italy, Monte dei Paschi is down 5.3 percent, Banco Poplare SC is down 4.4 percent, and Banca Popolare dell'Emilia Romagna and Banca Popolare di Milano are both down 4 percent.
BofA credit strategist Hans Mikkelsen flagged Italian banks as most at risk in the wake of the Cyprus deal.
Spain is getting hit too, though – CaixaBank is down 3.7 percent, Banco Popular Español is down 3.5 percent, Santander is down 2.4 percent, and Bankinter is down 2.3 percent.
Even the biggest French banks – BNP Paribas and Société Générale – are down 3 percent and 2.6 percent, respectively.
It's pretty clear what markets are taking away from the Cyprus bailout deal, which forced haircuts on uninsured deposits as a way to help pay for the rescue: the carte-blanche bailout regime in Europe may be over, and markets may have to reprice other European banks accordingly.
Eurogroup President Jeroen Dijsselbloem said as much in an interview with Reuters and the FT on Monday:
But he said that investor skittishness could ultimately make the financial sector healthier since it would raise the cost of financing for unsound banks.
"If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that," Mr Dijsselbloem said. "I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector."
Of course, many of these banks have also had a pretty good run in the past few months as part of the broader rally in risk assets that has swept across the developed world, so this could just be a bit of a correction at work as well.
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