Two days ago, Fitch released a report about U.S. bank exposure to Europe that caused bank shares to plummet, exacerbating a late sell-off in U.S. stock markets.
The report noted that exposure to stressed European markets was manageable, but warned further contagion posed a serious risk to the banks. The big five, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JP Morgan have about $22 billion in hedges associated with the stress markets, but Fitch still has concerns over how viable the hedges are.
Fitch said the rating outlook on the U.S. banking industry is stable, but the risks of negative shock are climbing and could change this view. A hindered U.S. banking system could weigh heavily on the U.S. economy.
JP Morgan, Goldman Sachs, and Morgan Stanley did not reveal their sovereign exposure. Nevertheless, their exposures to multinationals and financial institutions are significant. Here’s a chart from the Fitch report that shows the exposures of six big banks to European markets. Stressed European markets refer to the PIIGS: Portugal, Italy, Ireland, Greece and Spain.
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