NEW YORK (TheStreet) -- European banks are leading a slide in finance stocks as investors scramble to avoid the fallout of Greece's failure to strike a deal with creditors over the weekend.
Deutsche Bank (DB) dropped 6% on Monday, followed by Commerzbank (CRZBF) and Societe Generale (SCGLY), which each saw shares fall 5%. European companies are being squeezed more than those in the U.S. because they typically rely heavily on their region for profit, and risk-averse banking investors are concerned by both the collapse of negotiations and the looming 1.6 billion euro ($1.8 billion) payment due to the International Monetary Fund on Thursday.
Deutsche Bank carried roughly 416 million euros of Greek debt at the end of last year, compared with 400 million for Commerzbank, said Sebastien Pigeon, an equities analyst with Morningstar.
As for investment banking generally, "there's going to be some worries that their type of business will stall in the third quarter," Pigeon said in a phone interview with TheStreet.
E-brokerage firms including E*TRADE (ETFC) and Charles Schwab (SCHW) were hit on anticipations that lower rates in the U.S. as investors seek a safe haven from Europe would cut into profits, according to Richard Repetto, a principal at Sandler O'Neill. Both saw shares tank 4% in early trading Monday.
There is "no direct eurozone risk, but they [are] highly sensitive to U.S. interest rates," Repetto in an email to TheStreet. "U.S. rates have fallen with the flight to quality from the eurozone events and that's what's likely impacting the e-brokerage stocks along with the general decline in the market."
Financial corporations that will continue to be hurt are those with hefty bets on Greece, whether through Greek debt on their books or stocks tied to the teetering Eurozone member's chances of remaining a participant in the shared currency community.
"Deutsche Bank is a throwback to the old Wall Street model that has essentially collapsed," Michael Churchill, president of Churchill Research, said in a phone interview with TheStreet. "With all the different exposures it has, it probably has a huge balance sheet. Who knows how much it could get hit?"
U.S. banks appear to be better positioned, with many having unloaded much of their Greek debt already. At the end of the first quarter, Goldman Sachs (GS) had $180 million in exposure to Greece through sovereign counterparties or borrowers, a total that included the benefit of $906 million in securities and collateral, according to a regulatory filing. Additionally, the New York bank reported $34 million in risk related to its own holdings through changes in market prices
GE Capital, a unit of Fairfield, Conn.-based General Electric (GE), recorded about $281 million in Greek financing receivables and equipment leases in the same period, or less than 1% of its total outstanding in Europe, according to a regulatory filing.
JPMorgan Chase (JPM) CEO Jamie Dimon told shareholders in his annual letter in April that the New York bank conducted regular stress tests to make sure it was prepared for fallout from a decision by Greece to exit the euro.
"After the initial turmoil, it is quite possible that it would prompt greater structural reform efforts by the countries that remain," Dimon noted. As part of its review, JPMorgan studied all the major geopolitical crises dating to the Korean War and found only one that derailed global financial markets: the 1973 Middle East war, which prompted an oil embargo that made prices quadruple and caused a recession around much of the globe.
Comparatively steady debt markets also reveal that a potential Greek spinoff from the euro has already been factored into many creditors books, according to Churchill, who tracks spreads on Portuguese debt as a barometer of how the Greek news is affecting investor sentiment.
"Credit default swaps in Portugal and Spain, that's your signal," Churchill said. "If this is a real crisis, Portugal would be getting hit. The big lesson I got out of the crisis was to watch the debt markets. Portugal is telling you whether to care or not, and right now they are not. That's why debt markets exist is to help you predict the future, and right now they are saying not to worry about it."