This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Europe Pulls a TARP

NEW YORK ( TheStreet) -- Part of the gloom sitting over the U.S. markets has to do with the uncertainty surrounding the fate of the world's banking system should any of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) default on their sovereign debt.

The European Central Bank's recent action to "save" Greece really wasn't undertaken for the sake of Greece. Rather it was like the saving of AIG (AIG - Get Report) in 2008 by the Treasury via the Troubled Assets Relief Program. While that move was, in fact, done to save Wall Street's "too big to fail" from the domino effect that would have resulted from their large counterparty exposure to each other, so too was the ECB's bailout plan put in place to protect the European banking system, especially Germany, the Netherlands, Belgium, and France.

In April, the Bank for International Settlements published a study showing the percentage of bank assets exposed to the sovereign debt of the PIIGS by country. Canada, Chile, Panama, and Mexico had zero exposure. Here's the exposure of other major economies. The first set of exposures appear to be minimal, with total banking exposure not a threat to the financial systems --

Australia: 0.08%; Brazil: 0.198%; U.S.: 1.57%.

The following exposures would imply that the country's banking capital may be exposed -- U.K.: 4.53%; Austria: 4.84%; Japan: 5.02%; Germany: 6.18%; Netherlands: 6.79%; Belgium: 7.93%.

Finally, these three appear to have significant issues if there is a sovereign default -- France: 10.4%; Ireland: 13.50%; Portugal: 14.08%.

Several conclusions jump out from this data:
  • A default in any one of the PIIGS would likely cause the Irish or Portuguese banking systems to collapse, and maybe France's. This may have a domino effect on those systems with exposures of 4.5% or more, thus the logic for the ECB's recent actions.
  • The Americas, both North and South, and Australia have little exposure and, besides stock market unease, are unlikely to have systemic banking risk as a result of a PIIGS sovereign default.

Individual bank data dealing directly with this issue is harder to come by as most banking systems still resist transparency. Rochdale's Richard Bove, in early May, tried to segregate loans by dollar value by major U.S. banks to the PIIGS by country. His data, however, include both loans to sovereign governments and to the private sector. Nevertheless, an examination of his data can lead to some conclusions about such exposure. The table below shows five "too big to fail" Wall Street institutions. I have taken Bove's data by country and aggregated it to the PIIGS as a whole. In addition, I show the data as a percentage of the institutions' leverage capital. That gives us an idea of how exposed the capital is to events in the PIIGS countries.
Bank Stocks table
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HBC $0.00 0.00%
AIG $55.83 0.00%
BAC $14.80 0.03%
CS $15.56 0.00%
JPM $63.60 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs