Owning the most sovereign debt has its risk. The difficulties around giving the green light to the new Greek recovery and rumors that, despite everything, a default is inevitable. A default would cause some serious stock bloodletting, and many sectors are already deep in the midst of generalized sell-offs.
Gas and pharmaceutical companies are also culpable for a horrible month for the markets even though the banking sector continues to be the hardest hit of all Stoxx 600 companies.
Neither passing the stress tests nor prohibiting employment cuts had an effect. Investors continue to mistrust valuations of financial companies and divesting from their positions during a year characterized by risk aversion. This fear is causing feedback with the slightest outbreak of sovereign debt crisis. Yesterday, after Greece announced new measures for trimming their debt, the banking sector was hit the hardest once again. The same scenario has played out many times during the past 30 days. Up to half a dozen European firms remain on the Stoxx 600. Among the most prominent are the French banks BNP Paribas and Société Générale. Of the latter there are rumors of capital shortages. Deutsche Bank, Allianz, Santander and HSBC are the others on the list.
Besides the Greek debt crisis, one of the fears that have hit the sector hardest this month was when the International Monetary Fund (IMF) urgently warned the banks to recapitalize. Yesterday, the chief economist of Saxo Bank, Steen Jakobsen, re-visited this possibility in the event that Greek cannot meet all its payment obligations. Up until the end of last week, experts did not think that Spanish banks would need to take action, not anticipating that liquidity problems and the Greek crisis are worsening.
